Event Guide: SNB Monetary Policy Statement – June 2023

Alert, Franc Dealers!

The Swiss National Bank will announce its rate decision this week, and word of mouth is that it is set to raise the rate again.

Will they announce a smaller increase this time?

Here are the important points you need to know if you are planning to trade the news:

Focus on the event:

Statement of Monetary Policy of the Swiss National Bank

When will it be released:

June 22, Thursday: 7:30 a.m. BST

Swiss National Bank President Thomas Jordan will hold a press conference after the announcement.

Use our forex market hours tool to convert GMT to your local time zone.

Expectations:

Relevant Swiss data since the last SNB statement:

🟢 Bullish Monetary Policy Arguments / Bullish Swiss Franc

  • Jordan is the president of the Swiss National Bank He stated that the risks of inflation are higher than the risks of deflation in the future due to the decline in globalization, adding that high interest rates are beneficial to the banking system
  • Swiss GDP Increased 0.3% qoq in Q1 vs. expected growth number of 0.1% and prior flat reading

🔴 Pessimistic Monetary Policy Arguments / Bearish Swiss Franc

  • Headline CPI It slowed from 0.2% m/m in March to a flat reading in April, before rising again by 0.3% in May.
  • Unemployment rate It increased from 1.9% to 2.0% in May vs. 1.9% expected
  • BMI manufacturing (Purchases) fell from 45.3 to 43.2 in May to reflect a slowing pace of expansion, after a previous drop from 47.0
  • retail Decreased from -1.9% yoy to -3.7% in April versus an estimated decrease of 1.4%
  • KOF Economic Scale It fell from 96.1 to 90.2 in May, marking the fourth consecutive monthly decline

Previous issues and the impact of the risk environment on the Swiss franc

March 23, 2023

Action / Results: The SNB raised interest rates from 1.00% to 1.50% as expected, with Chairman Jordaan indicating that they could not rule out additional rate increases to ensure price stability.

The central bank also did not rule out future interventions in the currency, which led to a slight appreciation in the Swiss currency after the announcement and in the following trading sessions.

Risk Environment and Intermarket Behaviors: Risk flows were still very much in play during this trading week, as investors remained wary of banking sector risks.

In addition, US Treasury Secretary Yellen’s clarification that the government is not considering “universal insurance” for uninsured deposits has raised fears of possible smaller bank inflows.

On top of a poorly coordinated attempt by major central banks to support the sector, this led to a flight to safety and a rally in gold, which benefited the pegged franc early on.

December 15, 2022

Action / Results: The SNB raised interest rates by 50 basis points to 1.00% to counter “increasing inflationary spread”.

This sparked a sharp rally in the franc across the board, especially since the decision ran counter to prevailing expectations for central banks to moderate their hawkish rhetoric during the month.

In addition, the Swiss National Bank raised its inflation forecasts, potentially keeping the franc bulls optimistic about another tightening move in their next announcement.

Risk Environment and Intermarket Behaviors: This was a particularly busy trading week that featured four major central bank announcements as well as first-rate inflation updates, which led to a bit of consolidation before the big events started.

Risk-off flows emerged as the FOMC stuck to its hawkish edge, followed by still-aggressive tightening moves by the Bank of England and European Central Bank. It didn’t help risk assets that downbeat COVID-19 updates and economic figures from China kept coming back.

price movement probabilities

Possibilities of feeling risky: Major central banks have shifted their policy stances these days, with some halting tightening cycles and others resuming raising interest rates to fend off stubborn inflation.

This focus on the monetary policy outlook is likely to continue to dominate risk sentiment and broad volatility this week, especially as we will get more updates on the global monetary policy picture with the SNB, BoE and Fed monetary policy decision. President Powell’s testimony before Congress.

The volatility and risk-taking sentiment may remain muted until those events start to play out on Wednesday. And since hawkish rhetoric from the Fed and ECB recently has not dampened the risk mood as in the past, traders will likely remain risk-averse this week, unless we get a very hawkish surprise (especially if it’s from the Fed chair). Powell or Bank of England) or an important news/surprise event that is not currently scheduled on the calendar.

SNB scenarios

Base case: Another rate hike from the SNB is widely expected, but market participants appear to be torn between a sharp 0.50% hike or a 0.25% increase.

Recent economic figures mostly point to the need to slow the pace of tightening as inflation has already fallen to target range while expectations have soured somewhat.

However, recent testimonies from the SNB chief to Jordan suggest that the central bank may be looking to err on the side of the hawks. Reiterating that they want to see inflation fall below 2% and that they are open to potential currency intervention could mean more upside for the CHF.

In general, the outcome of the event does not seem to have a strong probability for scenarios of a 25 or 50 basis point rally, so this is one of those events where it is probably a good idea to wait for the outcome of the event and see how the market reacts.

And if we get a 50 bps rally and/or strong bullish signals over the next few meetings, that could entice fundamental buyers to go long on CHF against currencies with pessimistic or loose central banks (BoJ, RBNZ).

And if the broad-based risk sentiment is as positive as currently expected, then the CHF/JPY is a pair to watch closely for opportunities and do more work before considering a risk management plan.

Alternative scenario: As the tightening largely underestimated the SNB’s decision, the 25 basis point hike and any shift in rhetoric to a less hawkish stance may be taken by traders as a signal that the central bank is likely to sit on its hands during their next decisions, triggering profit-taking. Long for the Swiss franc in the short term.

In this scenario, watch for shorter and longer term opportunities to sell CHF against currencies with relatively hawkish central banks (ECB, RBA, BoC), with higher conviction if the broad risk mood is positively tilted around the event.

EventGuideJuneMonetaryPolicySNBStatement
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