Goldman Sachs cautions against premature short positions on Swiss franc

Goldman Sachs advises against taking a short position on the Swiss Franc at the current juncture, arguing that the market may be overestimating the impact of currency intervention by the Swiss National Bank (SNB).

Key Points:

• Overemphasis on Intervention: Goldman Sachs suggests that the significance of SNB interventions in maintaining the CHF’s valuation might be overstated by CHF bears. A substantial portion of the decline in SNB reserves since December 2021 is attributed to valuation effects, not just intervention.
• Downside Risk from SNB Meeting: A potential risk factor is the upcoming SNB meeting. A change in the bank’s language regarding foreign exchange could indicate greater confidence in the inflation outlook, potentially leading to downward pressure on the CHF. However, this scenario is not Goldman Sachs’ base case.
• Current Stance on CHF: The bank acknowledges a shift towards a less favorable environment for the Franc but maintains that it is not yet the right time to initiate a short position on the currency.

Conclusion:
Goldman Sachs’ assessment indicates caution in approaching the Swiss Franc with a short position. The evaluation takes into account the nuances of SNB’s interventions and reserves, as well as potential signals from the upcoming SNB meeting. While acknowledging changing market conditions, Goldman Sachs advises waiting for more definitive indicators before considering short positions on the CHF.

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