Emile Cardon, Research Analyst at Rabobank, suggests that there are cautiously positive signals from Switzerland. Key Quotes “Swiss macroeconomic data have not been as bad as expected. The economy grew by 0.4% in the fourth quarter, more than the 0.1% that was expected by market participants. Exports and government spending increased. Meanwhile the purchasing managers index came in above the 50-handle, signalling economic expansion. Still, several companies are complaining about the strength of the Swiss franc and 2015 has not been the best year for the tourist sector. Mario Draghi stated last week that he expects that interest rates do not need to be lowered further, which was the main catalyst for the change in market sentiment midway the press conference – even though Mr. Draghi did add that the Governing Council’s assessment may change if economic conditions change. Just before the press conference a rate cut by the SNB was fully priced in. However, the comments by Mario Draghi that he expects -0.40% to be the lower bound pushed the euro higher vis-à-vis its major counterparts and has changed this view. We have seen this before! In December just before the decision by the ECB a rate cut was almost fully priced in. However, the stimulus measures fell short of expectations and this reduced the pressure on the SNB to cut rates. Buying time What can we expect tomorrow? Rates will very likely remain on hold as the EUR/CHF currency pair advanced following the comments by Mario Draghi on the deposit rate. The forward on 3-month Libor rose from -1.05% to -0.81%. In fact, a very large majority of analysts does not expect a change on Thursday. We expect a dovish tone from the SNB, with Thomas Jordan repeating that the central bank is ready to do more, if necessary. Some revisions in the economic outlook could still be made. As the fourth quarter has been better than expected, we do not exclude the possibility that the economic growth forecast for 2016 will be revised slightly upwards. On the other hand, since January the international environment has worsened, mainly stemming from tensions after the weakening of the yuan and fears of weaker global growth. We still expect more measures from the ECB this year (probably as soon as September) – via a cut in the deposit rate - with fresh pressure on the EUR/CHF currency pair - , which could trigger more action from the SNB. First, via additional currency purchases and as soon as 16 June via a cut in the deposit rate from -0.75% to -1.00%. There are certain limits to what the SNB can do, and we do not believe the bank will cut further than -1.25% (perhaps already in December this year). We also believe the SNB will face political headwinds in the case that its total balance sheet exceeds 105- 110% of nominal GDP. We would therefore argue that the amount it could buy is for the time being limited to another CHF 50bn.” For more information, read our latest forex news.