Swiss National Bank meet Thursday - preview (spoiler: no change)
SNB meet 20 September 2018 and expected to maintain its target range for 3mth Libor at between minus 0.25 and minus 1.25%
- SNB meeting, we believe that low level of rates and rate differentials combined with FX strength, appear to be begging for either dovish validation by the SNB via FX language or a shift lower in longer-term inflation expectations.
- We suspect that if the SNB is conservative and leaves its FX language unchanged or inflation forecasts unaltered, the markets first reaction maybe to push for still more CHF strength, potentially taking EURCHF to new 14-month lows well below 1.1200
- Marked-to-market changes in the inflation forecast would lead to a higher near-term inflation forecast, but the SNB is likely to keep its mid-term projection unchanged, or it may even downgrade its mid-term inflation forecast again
- To avoid further CHF appreciation, the SNB will likely show a slightly more dovish stance in its statement
- CHF is now trading at its strongest level against EUR after the SNB changed its assessment slightly last September. The BIS-based nominal effective exchange rate also shows strong CHF appreciation recently partly because of EM currency weakness. European currencies including CHF are not trading so strongly against USD and real based effective exchange rate appreciation is more muted as inflation is much higher in the EM economies. Thus, the SNB is unlikely to change its valuation this week - our main scenario. Nonetheless, a slightly more dovish tone in its statement is likely, even after positive inflation data.