SNB cuts rates more aggressively than ECB – Commerzbank

It is still much too early for an SNB outlook as the Swiss monetary authorities will not decide on the interest rate level until September 26, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes. An interest rate move seems a foregone conclusion; the only question seems to be by how much, he says.

Higher EUR/CHF exchange rates are coming

“Both the ECB and the SNB are currently lowering their key rates. What is unusual about the status quo is that the SNB is ahead. It started cutting interest rates earlier than the ECB and is expected to deliver its third interest rate cut next week, while the ECB only lowered its deposit rate for the second time last week. The general CHF story, by which the franc is less affected by interest rate cuts than other currencies, is therefore not very convincing at the moment. This would of course be the case in particular if the SNB were to make a 50-basis-point move.”

“In Switzerland, nobody seriously expects a return to negative interest rate policy for Switzerland. Expectations of interest rate cuts are therefore naturally limited. But exactly therefore they are realistic to a large extent. Not only did the global inflation shock only reach Switzerland in homeopathic doses, but this little inflation has already evaporated. Hardly anyone is likely to assess the risk of inflation being too high as higher than the risk of it being too low.”

“This means that at the moment, expectations of the ECB lowering interest rates are weighing on the EUR/CHF exchange rate. We believe that these expectations will largely disappear. And that is why we believe that higher EUR/CHF exchange rates await us in the coming quarters. Regardless of whether the SNB cuts 25 or 50 basis points next week.”