RESEARCH CONTENT
The SNB surprise policy change and subsequent FX move is a reminder that the scenario of the uniform rate cuts currently priced into the money markets is unlikely to materialize. This is due to economies being at different stages of the cycle, with different amounts of indebtedness with different exposures to monetary policy.
Now that rate hikes stopped rising some time ago and inflation has now started to drop, Central Banks are fast approaching cutting cycles. The likelihood is that some will cut at different speeds and cumulatively by different amounts.
The SNB is clearly the forerunner in the cutting cycle, whilst the ECB seems to not want to move before the FED. This research shows how the bond market seems to be starting to get concerned about two economies. A further decline in yields and widening of their yields to UST spreads would likely lead to a decline in their currency valuations, which are already showing signs of weakness.