The Swiss National Bank (SNB) held its policy rates unchanged as expected, but surprised markets with a dovish tone, according to ING's Francesco Pesole. Despite an upward revision to inflation projections, SNB policymakers signaled no concerns about second-round inflation effects, maintaining that the price shock is still viewed as temporary [1]. The SNB also adjusted its foreign exchange stance, removing the reference to an 'increased willingness' to intervene, while retaining its commitment to act if necessary. This change was interpreted as a reflection of the franc’s recent weakness and does not indicate reluctance to intervene should the currency appreciate [1].
Pesole argues that market pricing for SNB policy remains too hawkish, with a rate hike fully priced in by March. However, ING sees few reasons for the SNB to tighten policy in the foreseeable future, suggesting downside risks for the Swiss Franc. Specifically, EUR/CHF could retest the 0.9480 highs seen earlier in September, while USD/CHF may rally toward 0.85 if the Federal Reserve hikes rates in October [1].
The dovish surprise from the SNB and the adjustment in its FX stance have kept the Swiss Franc under pressure against the US Dollar. ING's analysis points to further weakness for the franc, especially if US monetary policy tightens as expected [1].
CONCLUSION
The SNB's dovish stance and subtle FX policy adjustment have led to downside risks for the Swiss Franc, with ING forecasting potential rallies in USD/CHF and EUR/CHF. Market pricing appears overly hawkish, and ING sees little reason for SNB tightening in the near term. The franc is likely to remain under pressure, especially if the Federal Reserve raises rates.