Goldman Sachs: What we expect from the SNB and how to trade it?

Goldman Sachs anticipates that the Swiss National Bank (SNB) will cut rates in this week’s meeting, likely opting for a smaller cut (25bp) rather than a more substantial 50bp reduction. The decision follows softer-than-expected inflation data and aims to preserve room for future adjustments if necessary.

Key Points:

1. Inflation and Rate Cut Expectations:

   • Recent inflation prints have prompted expectations for a rate cut at the SNB’s September meeting.
   • A close call is expected between a 50bp and 25bp cut, but Goldman leans towards the latter.

2. Monetary Policy Strategy:

   • The SNB may hold back from significant policy changes to maintain flexibility for future adjustments, particularly if inflation continues to underperform or if the Swiss Franc (CHF) strengthens excessively, especially in response to potential ECB rate cuts.
   • There is speculation that the SNB has already intervened to curb CHF strength during market volatility last month.

3. Currency Strength Defense:

   • Should the CHF approach levels seen in August—where the SNB previously intervened—the bank is expected to defend against further appreciation using its balance sheet.

4. Investment Positioning:

   • A cut from the SNB is seen as supportive for a long position in GBP/CHF, especially following a slightly hawkish signal from the Bank of England and improved risk sentiment after the Fed’s recent announcements.
   • If the SNB opts for only a small cut, reinforcing their readiness to use balance sheet tools will be crucial for maintaining confidence in CHF stability.

Conclusion:

Goldman Sachs forecasts a rate cut from the SNB in this week’s meeting, likely a 25bp reduction. This decision is expected to support long GBP/CHF positions amidst favorable risk sentiment. Investors should watch for the SNB’s balance sheet strategies to manage CHF strength and maintain market confidence moving forward.

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This article was written by Adam Button at www.forexlive.com.