Citigroup economists expect the Swiss Franc (CHF) to weaken as the Swiss National Bank (SNB) may have ended its tightening cycle.
CHF tilts toward prolonged period of underperformance
The SNB’s pause at its September meeting, with a terminal rate of 1.75%, likely signals the end of its tightening cycle, leaving the CHF tilted toward a prolonged period of underperformance, given the CHF’s significantly underperformance in compared to almost all of its G10 counterparts (excluding the Yen).
However, by ending its rate-hiking cycle, the SNB has shown itself willing to bolster the CHF should Swiss inflation once again exceed its 2% target. However, given that Switzerland has an exports-to-GDP ratio of 75% and is much more export-oriented than its counterparts, the SNB is likely to be more cautious this time around in supporting a stronger CHF, especially when its growth prospects weaken significantly.
The CHF is expected to weaken against most of its G-10 peers in the medium term, as investors use the currency as a low-cost financing vehicle to purchase risk assets and currencies.
Source: Fx Street
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