FX Tacticals: Pick Bottoms in EUR-CHF
Reiterating the short CHF call
Treasury & Markets, Terence Wu21 Jun 2024
  • SNB minted a second consecutive 25 bps rate cut; we reiterate our short CHF conviction call
  • Choosing a pair to express the short CHF view is more difficult now, compared to 1Q24
  • We prefer to pick bottoms in the EUR-CHF...
  • ...which has seen outsized declines on the back of Eurozone political uncertainties
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The latest SNB decision – another 25 bps rate cut – suggests that the short CHF conviction call remains intact.   

  • Short CHF has been a conviction call this year. We called for long GBP-CHF and long USD-CHF ideas in this publication back in 23 Feb and 22 Mar – the direction of travel of both pairs were aligned to those ideas in the subsequent weeks.
  • The stable CHF-weakness trajectory was disrupted on 30 May, when SNB Governor Jordan commented that the weaker CHF contributed to a CPI bounce in Apr, and the SNB could use intervention to limit CHF weakness. The market interpreted this as potential SNB concern over CHF weakness, and spurred a re-rating of SNB rate cut expectations. This would have negated the central argument of the short CHF conviction call. Expectedly, CHF underperformance narrowed in response, with the USD-CHF pulled lower from levels above 0.9100 prior to 30 May to the 0.8900 – 0.9000 zone. Beyond Jordan, the recent political uncertainties in France also sparked safe-haven flows into Switzerland, resulting in another leg of CHF strength. 
  • However, the latest SNB decision (20 Jun), where the policy rate was cut by 25 bps in the second consecutive meeting, suggests that market concern after Jordan’s comments on 30 May is overplayed. If CHF weakness is indeed an SNB concern, it would more likely preferred to hold the policy rate unchanged. In the decision, the SNB referenced that "underlying inflationary pressures has decreased again compared to the previous quarter", suggesting that it is willing to overlook the Apr-May inflation spike. Overall, the growth-supporting function likely still outweighs the inflation-fighting role for the SNB. Going forward, another rate cut in the next meeting in Sep cannot be ruled out.
  • Taken together, the central argument of the short CHF conviction call remains in play.

Figure 1: EUR-CHF from May 2023

Source: Bloomberg, DBS

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Note: All views expressed are current as at the stated date of publication


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