The Swiss National Bank (SNB) will likely conclude its unprecedented tightening campaign with a quarter-point hike on Thursday, a move that risks putting an end to the franc’s peer-beating rally.
All but four of 31 economists in a Bloomberg survey expect the key rate to be lifted to 2%, with the remainder forecasting a pause. In anticipation, investors have ramped up bets against the franc, almost doubling their short position against the dollar.
The franc has outperformed all its Group-of-10 peers this year on the back of the SNB’s tightening campaign, reaching an eight-year high against the euro in July. Now, analysts say further tightening won’t be necessary given growth is faltering and inflation — unlike in other jurisdictions — has already returned to target.
“Investors have grown sceptical on the franc rallies, and so have we,” said Athanasios Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch. “We are concerned the SNB is overtightening.”
With a quarter-point step, Swiss policymakers would mirror last week’s move of the European Central Bank, narrowing the spread between the two rates to 250 basis points. But given how much slower inflation is in Switzerland, the central bank’s stance has had an outsized impact.
Investors increased their short position on the franc versus the dollar in futures and options markets by almost 80% in the week ended on September 12, according to data from the Commodity Futures Trading Commission. Exchange rates
The franc traded at 0.96 per euro on Tuesday, having strengthened from a parity in January. It’s up more than 3% since the start of the year.
Not all economists are convinced an increase in borrowing costs is really necessary.
“The SNB doesn’t have to prove anything to anyone,” said Karsten Junius, chief economist at Bank J Safra Sarasin Ltd, who is predicting a “hawkish pause.”