CHF: no reserve against its appeal

The CHF remains among the laggards of the G10 FX space in Q422. Amidst fairly
resilient risk appetite, the widening gap between CHF rates and other developed
economies has possibly weighed on the CHF. Another slight cooling in Swiss CPI
last week was not going to reverse this trend, nor call into question additional
tightening by the SNB. Furthermore, we continue to think that the CHF is yet to
price in the positives of more muted inflation domestically in comparison to most
peers, as (1) activity is less at the mercy of stagflation threats and (2) larger inflation
gaps call for nominal CHF gains to keep real valuations largely at par. The SNB is
surely keeping a close eye on the latter, although it remains to be known whether
the central bank eventually intervened this quarter. In that respect, today’s FX
reserves figures may not offer much insight, as they seem poised for a tentative
rebound thanks to a substantial recovery in equity last month, while any slight
losses on fixed income holdings were possibly offset by the CHF’s losses against
most G10 FX peers last month. Meanwhile, the weekly SNB sight deposit data is
no longer a good proxy for potential interventions either.

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