CHF: inflated real appeal

In comparison to the many European countries where inflation has recently shot to
double-digit territory, Switzerland still appears as a haven of fairly contained
inflationary pressures. In the three months to August, Swiss inflation was indeed
able to stabilise near 3.5%, a trend that this morning’s CPI release is expected to
largely confirm. As long as the SNB’s forecasts of CPI stalling around these levels
are not dramatically called into question, the CHF should not be too moved, while
still keeping intact the prospects of further monetary tightening at upcoming
meetings. In any case, interest rate differential considerations have hardly had any
influence over the CHF’s outperformance of the past few months, as instead the
widening inflation gap has been a key backing of nominal CHF gains. Besides the
inflation figures, the Swiss manufacturing PMI for September could offer extra
evidence that activity across Swiss factories has held up better than for most of
their EU peers. Meanwhile, the SNB sight deposit data has possibly lost its proxy
status for FX interventions since the introduction of the reverse-tiering is likely to
force financial institutions to go to the money market to avoid not getting paid
interest on excess CHF liquidity.

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