Analysts at MUFG Bank, point out that hard landing fears and a hawkish Swiss National Bank (SNB) favour further Swiss franc outperformance. According to them, the Swissy should continue to benefit from the SNB’s desire to dampen upside inflation risks both through faster rate hikes and tolerating a stronger currency.
“The CHF has been the top performing G10 currency so far this month as it has strengthened sharply against both the EUR (+2.2%) and USD (+1.5%). It has regained upward momentum against our equally-weighted basket of other G10 currencies after a period of consolidation at higher levels between July and August. The CHF’s renewed upward has once again coincided with an abrupt hawkish repricing of SNB rate hike expectations similar to in June.”
“Market participants are increasingly confident that the SNB will continue to play catch up with major central banks and deliver a larger 100bps hike in the week ahead (Thurs) to combat upside inflation risks. There are currently 86bps of hikes priced in. The SNB has also become more tolerant of currency strength since their last policy meeting in June as it provides another channel to help dampen upside inflation risks.”
“The CHF appears well positioned to extend its recent advance especially against other high beta G10 currencies.”
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