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15.09.2016 06:06

Trading The SNB & The BoE - Views From Major Banks

"SNB Sep Meeting: Thurs Sep 15 - 3:30 AM ET.

Morgan Stanley: Bullish CHF On SNB Inaction; A Buy On Crosses.

We remain bullish on CHF and like buying crosses such as against CAD, AUD and JPY. This week, the SNB rates decision will be the main idiosyncratic risk event. Markets are pricing for a dovish SNB and a further 4bp rate cut by December, but we do not expect the SNB to change its policy. This gives potential for CHF to rally as markets get disappointed and adjust their rate expectations. Coupled with rising real yields, Switzerland's 10% of GDP current account surplus, and weak banks' balance sheets reducing the export of long-term capital, we think CHF has more room to the upside

Credit Agricole: SNB On Hold; CHF Remain The Most Overvalued G10 Currency.

CHF remains the most overvalued G10 currency and we expect it to underperform from here. For now the currency remains mainly driven by global risk sentiment. This is unlikely to change unless there is rising scope of the SNB considering additional policy action. Regardless of still muted price developments, it appears unlikely that the central bank will consider additional policy steps as soon as this week. This is especially true as global conditions have been pretty stable owing to, among others, less adverse contagion from the Brexit vote than initially feared. Nevertheless, as the overvalued currency is keeping monetary conditions too tight and as forward looking indicators such as the KOF leading one paint a more lacklustre picture, there is no scope of them considering a less dovish stance neither. If anything the central bank should stick to a policy mix consisting of negative interest rates and currency intervention and such prospects should keep the franc's safe haven appeal relatively low. Still, risk sentiment will stay an important driver. As a result to the above outlined conditions we expect crosses such as EUR/CHF to remain well supported.

Barclays: No Change From The SNB; EUR/CHF Neutral.

We expect the SNB to keep its policy settings unchanged at its September meeting (Thursday) including its policy rate at -0.75%, the target range for the three-month Libor at -1.25/-0.25% and the exemption from negative deposit rates it gives on the majority of domestic banks' reserves. Subdued market volatility since Brexit, has implied a c.1.6% CHF REER depreciation, which in addition to a modest improvement in Swiss data, should keep the SNB comfortably on hold, in our view. Reduced pressure for the SNB to act can also be implied by the decline in our estimates of FX intervention since June (Figure 5). We expect the policy announcement to be neutral for EURCHF.

BoE Sep Meeting: Thurs Sep 15 - 7:00 AM ET.

Credit Suisse: BoE To Tweak Dovish Tone; GBP/USD A Buy.

We expect BoE to marginally tweak down its dovish tone this week, which should give a brief lift to the pound.We see little incentive for the MPC to be any more dovish than the market is already pricing in for the remainder of the year (around 7bp of cuts). In fact, at this point the BoE may now even want to avoid raising the market's expectations for additional easing, given some of the glitches it has had with QE bond shortages and the uncertainty of whether it needs to save ammunition for a 'hard-Brexit'. The MPC may take advantage of the stretch of recent data to paint a more balanced 'wait-and-see' message - perhaps by sounding encouraged by the pass-through of the recent rate cut or more concerned about the upside inflation risks. While FX markets do not seem to be pricing in a particularly eventful or dovish MPC meeting, positioning remains highly short in GBP, and the pound has not hesitated to rally in response to local data and MPC guidance.

Credit Agricole: Limited Scope For A Surprise; Limited GBP Upside From Here.

When it comes to the BoE, we see limited scope for a surprise. If anything, the central bank should leave all options open when it comes to the need for further policy measures, as overall uncertainty - for instance, related to next year's Brexit negotiations - should persist. Such an outcome would be fully in line with last week's testimony in front of parliament. If anything, one should therefore expect central bank rate expectations to remain strongly capped and such prospects are likely to prevent the currency from facing more sustainable upside from the current levels. This is especially true as speculative short positioning may be less elevated as for instance suggested by IMM data alone.

Barclays: BoE On Hold On Thurs; GBP/USD En-Route To 1.27 By Year-End.

This week's BoE meeting (Thursday) will be the key event risk for GBP and we expect no change in the MPC's monetary policy settings. We look for unanimous voting in favour of the status quo for the current APF (9-0) but do believe that dovish Committee member Gertjan Vlieghe is likely to dissent and vote for a cut (8-1). Moreover, we expect the minutes to echo the testimony of Governor Mark Carney and Committee members Jon Cunliffe, Kristin Forbes, and Gertjan Vlieghe to the Treasury Select Committee and think the MPC is comfortable with its recently announced easing package. A confirmation of this and openness towards further easing, should downside risks to the economy materialize, will likely keep GBPUSD under pressure, in our view. Barclays targets GBP/USD at 1.27 by the end of the year".

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