CHF: Base effect meets upside surprises in neighboring countries - Commerzbank

On the last day of last year, the Swiss National Bank (SNB) announced the extent of its foreign exchange interventions in the third quarter - given the repeated hints from officials that more intervention was possible at any time, this was probably one of the most important data points of recent months. Unsurprisingly, however, the SNB purchased relatively little foreign currency in the third quarter, at just under CHF 730 million, i.e. it only weakened the franc slightly artificially. Given that the franc appreciated significantly in the third quarter on the back of heightened risk aversion, this is a signal from the SNB that it will only intervene more strongly in the event of an extreme emergency, Commerzbank's FX analyst Michael Pfister notes.

Any movements in the Swiss franc to be short-lived

"For the time being, the key interest rate remains the instrument of choice for reacting to inflationary developments. With its surprise rate cut of 50 basis points in December, the SNB indicated that the risk of a return to negative interest rates had been reduced and that the SNB had effectively got ahead of the curve again in terms of stabilizing inflation in the target range in the long term. However, it will probably take some time for this effect to be reflected in price increases. Two other effects are therefore likely to come to the fore in today's December figures."

"On the one hand, this time a relatively large price increase from the previous December is going to drop out of the calculation of the year-on-year rate, which should artificially depress the year-on-year rate. On the other hand, there are also other factors that should lead to somewhat stronger price pressures again. For example, oil prices rose again in December, suggesting higher transport costs in Switzerland. On the other hand, both Spanish and German inflation figures have surprised on the upside in recent days, which, given the relatively high correlation with the Swiss figures, also points to stronger price pressures in Switzerland. In short, today's figures promise to be quite exciting."

"However, the usual volatility in monthly inflation figures is likely to be less relevant for the SNB than the longer-term trend. Moreover, concerns about the second Trump administration and its potential impact on global inflation are likely to grow in Switzerland as well. It is therefore quite possible that the SNB will look through today's possible surprise and that any movements in the Swiss franc will be short-lived."