ING’s Chris Turner highlights a Bloomberg source story suggesting the Swiss National Bank (SNB) may keep its policy rate at 0.00% until end-2027, aligning with ING’s own forecast. He argues this entrenches Swiss Franc (CHF) underperformance in rising global rate environments and supports using USD/CHF to express hawkish Fed views, with potential for the pair to reach 0.85 in August if the Fed hikes.
Franc seen as prime funding currency
“Yesterday afternoon, Bloomberg ran a source story that insiders at the Swiss National Bank felt the SNB would keep the policy rate unchanged at 0.00% until the end of 2027. Forward guidance, like this, has become exceptionally unfashionable in central banking circles this summer. Additionally, we very rarely receive source stories like this from the SNB. The opposite is true of the European Central Bank, where post-meeting source reports are now commonplace.”
“The SNB has yet to comment on this report, which may very well be true. Certainly, at ING, we forecast the SNB on hold throughout 2027 and have seen that as a factor which drives Swiss franc underperformance when global interest rates rise on higher oil prices – this as interest rate differentials widen against the franc.”
“The story will also point carry trade investors to increasingly fund out of Swiss francs rather than the yen. Funding out of Swiss francs is cheaper and also avoids the risk of the Bank of Japan intervening to the tune of $70bn, which could trigger a quick 3-4% drawdown for yen-funded carry trades.”
“We have also been saying this for a while, but we think Switzerland’s low rate environment has made USD/CHF a very popular vehicle to express hawkish Fed views. Were the Fed to blow the doors off with a hike tomorrow, USD/CHF could be looking at 0.85 in August.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
