Switzerland releases Q1 GDP growth data on Monday and a strong number should see continued gains for the Swiss franc.
The USDCHF exchange rate is trading at the 0.82345 level and is aiming for a test of the previous low at 0.8045.
The latest growth number was released at 15:00pm HKT and economists are expecting a gain of 0.4% for the quarter, up from 0.2%. ING analysts were surprised to see the CHF remain strong.
“The fact that it is still trading below 0.94 probably owes to creeping distrust of US Treasuries and the view that the Swiss National Bank is in a bit of a bind when it comes to interest rates and FX intervention,” they said.
“Looking at the SNB, it is reluctant to take the policy rate negative again, but it looks like it will have to when it next meets on 19 June. Currently, the market is split between a 25bp and 50bp rate cut.”
“Equally, investors are of the view that the SNB will be more constrained with FX buying intervention. The big doubt now is that the SNB can be dovish enough in June to take pressure off the EUR/CHF downside, especially if the ECB is to cut twice more”.
Swiss National Bank (SNB) Chairman Martin Schlegel said weaker inflation, a strong Swiss Franc, and market volatility are growing risks to price stability.
Schlegel noted that “even negative inflation figures cannot be ruled out in the coming months”.
“The SNB does not necessarily have to react to this. Our focus is not on the current rate of inflation, but rather on price stability over the medium term,” he added.
Swiss inflation remains down at 0.0% in April, touching the lower level of the SNB’s official 0–2% target range and adding to expectations for further monetary easing.
Meanwhile, the Economy Minister Guy Parmelin was hopeful in the current trade discussions, saying, “we hope that by the beginning of July, we will have a result from discussions with the United States”.
If the GDP number comes in as expected, or better, then the franc can aim for the April lows.
