Goldman Sachs on the Swiss National Bank and the franc
In summary (bolding is mine for emphasis):
The Swiss Franc ... after exhibiting appreciation pressures up to the end of June, it has weakened almost 4% versus the EUR and between 5% and 6% against NOK, SEK, CAD and AUD, but just about 1% versus the USD
- We interpret the moves in CHF crosses as largely driven by the 'other leg of the cross' rather than changes in the Swiss economic outlook or the SNB's monetary policy stance
- The SNB should stay the course for now and developments in other G10 economies may well mean that the recent weakness in CHF extends further
More:
- Even though the Swiss economy faces financial stability concerns that are not dissimilar to those faced by the Canadian economy, we do not expect the SNB to change its stance in the near term, unlike the Bank of Canada.
- We agree with the market's view so far that growth and price developments in Switzerland are not as strong as in the other small open developed economies to warrant a change in the monetary policy stance in the near term to underpin a stronger currency.
- The SNB expects growth of around 1.5% on average for the rest of the year (a level that it considers moderate) ... it estimates that the output gap is still in negative territory and expects inflation to remain well below the policy target (at just 1%) by end-2019.
- Our economists' economic outlook is in line with that of the SNB
On the Swissy:
- Importantly for the currency outlook, the SNB has reiterated its view that the Swiss Franc is significantly overvalued in its Quarterly Inflation Report, published at the end of June, and has continued to intervene in the FX market to contain currency strength.
- The Swiss Franc is also overvalued on our own models ... different valuation models point in the same direction, with an average overvaluation of around 7.2%, only slightly lower than that for the NZD.
- We therefore place our 3-, 6-, and 12- month EUR/CHF forecast under review.
- On our current forecast (EUR/CHF at 1.09, 1.08 and 1.07 in 3, 6 and 12 months, respectively), the Swiss Franc has depreciated more than we anticipated.
- As said, we do not expect the economic outlook and the monetary policy stance in Switzerland to be at risk due to the currency weakness. We see the main risk to our view being increased demand for 'safe haven' currencies on the back of geopolitical developments. A slowdown and resurfacing of deflationary risks in the Euro area (not our base case) would also likely put the CHF under appreciation pressure again.
