Here's a recap on the month of major central bank policy decisions so far:
- Bank of Canada interest rate decision: Rates lowered by 25 basis points
- ECB cuts deposit rate by 25 bps in September monetary policy decision, as expected
- Federal Reserve September interest rate decision: 50 basis point cut
- BOE leaves bank rate unchanged at 5.00%, as expected
- Bank of Japan leaves rates unchanged, as widely expected
- RBA leaves cash rate unchanged at 4.35%, as expected
That leaves us with the SNB left later in the week. And I would say it will be one of the more interesting decisions besides the Fed in September.
The "expectation" is for the Swiss central bank to cut rates by 25 bps, bringing the key policy rate to 1.00%. This was their previous decision in June.
However, since then, they have made a bit of a pivot to comment on their dislike towards a stronger franc. In terms of USD/CHF, the pair is keeping near the lows for the year and just off key daily support around 0.8400 recently. But sure, it's the dollar equation playing a role as well. But what about the more watched EUR/CHF?
The pair briefly touched its lowest point in August under 0.9250 before bouncing back up to 0.9450 levels currently. But still, the danger is not over and if the SNB really wants to prevent another return to deflation, this is a key risk to be mindful of. There is no time to be complacent.
In that lieu, they might just spring a surprise on market players this week as such. After all, the SNB does have the propensity to do that as seen in the past.
If so, how much will that catch markets off guard?
Well, the OIS pricing shows traders attaching ~51% odds of a 25 bps rate cut this week. The remaining ~49% odds are with a 50 bps rate cut. So, it wouldn't be the most surprising decision if the SNB does go big this week.
That said, there's only so much more that traders are seeing the SNB will do. Looking out to June next year, traders are pricing in just ~71 bps of rate cuts and that includes what's priced in for this week.
In any case, the SNB has a bit of a balancing act to do as things stand. They want a weaker franc and traders are already pricing in the potential for them to surprise. But at the same time, going big this week leaves less buffer room for them to cushion further blows to the economy moving forward.
And that certainly sets us up for one of the more interesting decisions we have in wrapping up the month.