SNB on hold as conditions have started to ease mildly

In Switzerland, Swiss National Bank (SNB) is expected to keep its policy rate unchanged at -0.75 percent and preserve the target range for the three-month Libor at -1.25/-0.25 percent at its 17 September meeting, but downside risks still remain for economic activity and inflation from an overvalued exchanged rate. 

Moreover, SNB is also likely to reiterate again its ability and readiness to ease policy further should a sustained CHF rally materialize. However, the CHF has depreciated nearly 3% in real effective exchange rate terms since its mid-August highs, with EURCHF appreciating above 1.10 for the first time since the SNB stepped away from the floor in the beginning of the year. Modest CHF depreciation in the past few weeks, in addition to better-than-expected Q2 growth, has eased conditions somewhat and relieved some pressure from the SNB. 

Nonetheless, recent financial volatility and China growth concerns, in addition to the imminent risk of further ECB easing, pose key risks for the SNB; it will be watched closely and met with further FX interventions and likely additional cuts. 

"Looking ahead, we continue to expect significant downward pressure on the CHF on the basis of negative returns to capital and currency overvaluation. We also maintain our view that the USD and the JPY are superior safe-haven currencies in periods of market stress," explained Barclays.