Swiss National Bank to keep policy unchanged

No change is expected in policy at the SNB's policy meeting (Thursday) following last week's ECB meeting. The SNB would remove the exemption from negative deposit rates for domestic banks' sight deposits, its "nuclear" option, it was conditional on the ECB taking aggressive action that would increase downside pressure on EURCHF. 

In the event, the ECB disappointed market expectations substantively, pushing EURCHF higher. As a result, the SNB is expected to take the "wait and see" approach that would accompany a less aggressive ECB, which implies no change in SNB policy this week. The market is now pricing a low chance of a rate cut (c.15%).

"We have closed our long USDCHF spot position and look for better levels to re-engage but remain bearish CHF due to the currency's overvaluation and downside risks to growth and inflation", says Barclays. 

Furthermore, a significant increase is expected in the SNB's FX reserve data (Monday) but forecast most of the move to be driven by valuation effects owing to the CHF's NEER depreciation in November.