The Swiss National Bank (SNB) will release its monetary policy statement today. This will be an important decision for one of the most important central banks in Europe. Traders expect that the bank will leave interest rates unchanged at minus 0.75% and the target range for the three-month Libor between -1.25 percent and -0.25 percent. Most analysts expect the bank to retain this policy until summer of 2019.
In recent meetings, the officials have sounded optimistic about the Swiss economy that is performing above average. The unemployment rate has fallen while the industrial production rate has increased significantly. This has been caused by increased external demand for Swiss-made products like chemicals, machinery, and pharmaceutical products.
A major reason for this growth has been the SNB’s low interest rate policy that has led to a weaker franc. A weaker franc has made exports less expensive and more competitive in the market. However, in the past four meetings, the bank has said that the franc is overvalued against the US dollar and the euro. The chart below shows the performance of the franc against the euro.
Since the EU is the biggest trading partner for Switzerland, the strengthening of the franc against the euro has affected the market.
As shown below, the franc has also strengthened against the dollar. This has happened as the general sentiment of the greenback has taken a hit as traders wait for the next signal from the Fed.
Therefore, there is a high likelihood that the concerns of an overvalued franc will be made in today’s statement by the SNB.