The Franc’s Real Erosion
This week’s KOF leading indicator will likely reinforce the relatively robust outlook on the Swiss economy. Nonetheless, sustained upside data surprises should not be taken as a signal to fade CHF downside, not least with price prints. As recent figures have shown headline inflation is already ticking up (even though only ‘less negative’ sequentially), and PPI levels are now materially higher than in 2012: the pass-through implications to end consumers will also have a price impact. Such figures may not influence policy for now, but amongst structural longs-franc positions, a reassessment is overdue. Inflation could be the single-most important element to materially undermine the currency’s apparent invulnerability and this is starting to show. Small wonder that our flow data show private clients have been net buyers of EURCHF for 12 out of the last 14 weeks (as of July 26th).
Read the full report: UBS