The development of the Swissie towards depreciation over the past two weeks appears surprising, as risk-off sentiment tends to favor demand for safe havens. One might consider that the Swiss National Bank is probably intervening effectively to limit the impact of unfavorable exchange rates on the export-reliant economy. Yet it seems that the monetary authority has remained particularly modest on the FX market in the past three months as the monetary policy consisting of a negative deposit interest rate of -0.75%, lowered back on 15 January 2015, looks to work effectively, thus moderating the case for additional rate cuts for the time being.
Although foreign currency reserves marked an increase of 0.28% to CHF 779.14 billion (prior: VHF 776.97 billion) in October, partly explained by a rise in EUR/CHF following 3Q profits publication of CHF 13 billion, it is remarkable to note that the CHF has been stabilizing within range since its last policy meeting on 19 September 2019. The labour market remains tight despite the rise to 2.20% (prior: 2.10%) with a significant drop in the number of unemployed of 5,631 (-5.20%) compared to last year. On a less positive note, external trade continues to flatten, with both exports and imports down -1.30% (prior: 2.70%) and -2.40% (prior: -1.30%) in October, mainly driven by pharma exports rollercoaster started early 2019 and partially offset by China’s above average demand in the past months. Considering that real wage earnings and inflation are expected to reach 0.90% and 0.20% in 2020, signaling a net pay hike next year, it seems that the Swiss economy still has some room for maneuver despite continued pressure on export margins. In any case, as major central banks seem ready to maintain ultra-loose monetary policy for some time, the SNB is not expected to move. The next monetary policy meeting scheduled for 12 December 2019 should therefore maintain the status quo.