Traders Hunt Clues On Strong Franc As SNB Opens Up on Rates
(Bloomberg) — The Swiss National Bank is about to let investors judge if more transparency on monetary policy leaves them any the wiser.
When officials release a summary of their September interest-rate meeting on Thursday, currency markets will encounter a rare new regular calendar fixture to trade the franc on — but one clouded in suspense on whether it will actually be worth their while.
The publication marks a nervous leap forward by the SNB to align communications more with advanced-economy peers, revealing the thinking behind decisions rather than simply emitting outcomes. With the franc testing decade-highs, investors will scour the summary for clues on the strategy to contain its strength, from cutting rates into negative territory to deploying interventions.
SNB President Martin Schlegel insisted last month that the document will “of course” be useful. But officials have also tried to temper expectations on how much light it will provide on disagreements compared with minutes of the US Federal Reserve for example, given the Swiss stance of maintaining a united front in public on decisions.
“I hope that there is some more skin to the bone than in the monetary policy statement,” said Sophie Altermatt, an economist at Julius Baer in Zurich. “I don’t think expectations in markets, and also for economists, are very high in terms of more information on their thinking about the currency.”
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While the SNB has taken steps on transparency in recent years, from publishing quarterly intervention data to holding more press conferences, the summary is its most concrete move yet. Released four weeks after every quarterly rate meeting, it will effectively double the number of collective monetary policy publications by the three-member board.
That expands a hitherto minimalist approach. Among the world’s most-traded currency jurisdictions known as the Group of 10, the SNB’s calendar tally of four monetary decisions every year is by far the fewest. Central banks in that club tend to have about twice as many.
The SNB has either stuck to its thin schedule to tweak policy, or jolted markets with abrupt moves such as its notorious 2015 abandonment of its cap on the franc. Sparse messaging has left investors vulnerable to shocks even at calendar meetings: several decisions in recent years to raise rates and to ease featured suspense and surprises.
That’s arguably part of the central bank’s modus operandi to unsettle anyone pushing money into the franc. Schlegel, who took office a year ago after previously serving as vice president, hasn’t shirked from surprises too: the first decision under his watch was a bigger-than-expected half-point cut.
Whether the summary will avert such burns may not be the SNB’s priority as it confronts haven-fueled currency inflows, stoked by US President Donald Trump’s trade and economic policies, France’s budget crisis and ongoing geopolitical risks.
With the SNB’s rate back at zero, and judicious wave-breaking interventions being deployed, observers will watch for any signs of how worried officials are about deflation risks, which lever they might lean on to react, and what the trigger points might be.
Each option has costs: cutting into negative territory hurts the financial system, while selling the franc bloats the SNB’s balance sheet and annoys the Americans.
“What could really be surprising is if some members voice a desire to use FX intervention more aggressively,” said ING FX strategist Francesco Pesole in London. “If they reinforce the message that they’ll go ahead with FX intervention despite the US Treasury’s scrutiny, then CHF can come under pressure.”
By contrast, shirking from such messaging and showing a “lack of support for negative rates” would bolster the currency, he said.
How officials even describe foreign-exchange markets may be of interest to traders. Minutes from the Bank of Japan, for example, regularly include a summary of the yen’s movements, along with occasional, general warnings about the impact on the wider economy from excessive shifts.
Even so, global policymakers rarely offer views on currency levels. The SNB itself stopped doing so in recent years because “it’s no longer adding value,” Schlegel said in an interview last month.
The big economic question hanging over Switzerland at present is the extent that US tariffs of 39% — the highest applied to any advanced economy — will meaningfully weaken growth. The government last week cut its forecast for expansion next year.
If the summary shows a sanguine view on the economy, the franc could face upward pressure, said Simon Harvey, an economist at LB Macro SA.
“I think they’ll maintain the messaging that external conditions are set to have a negligible effect on the Swiss economy due to their limited scope — i.e. a high bar for further cuts,” he said.
Overall, currency traders are posturing for more gains in the franc this week. So-called risk reversals, a gauge of sentiment in the options market, indicate they are the most bullish on the Swiss currency in four months.
Whatever happens on Thursday, the release of the summary marks a watershed moment. Despite muted expectations among investors, Altermatt at Julius Baer is holding out for some illumination from a central bank long shrouded in secrecy.
“The market knows that the SNB doesn’t communicate that much at all, so it’s basically an add-on,” she said. “I really hope that it will add some more color, and I think it will.”
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