Swiss unemployment fell in February to 3.7% from 3.8% in January. Although there is a seasonal factor to take into consideration, hiring generally only really starts to pick up in the month of March. CPI figures in February also bettered expectations with prices rising 0.2% compared to a drop of -0.4% in January and -0.1% expected. These, are first signs of improvements after a very difficult year in 2015. It will be interesting to see whether the Swiss economy can keep up the momentum over the coming months.
SNB will be the highlight in the next few days
The SNB monthly foreign currency reserves fell 4 billion in the month of February after it had risen 15 billion in January. As the EURCHF reached a new high at 1.12 in the beginning of February, the SNB may have taken this opportunity to reduce its heavy euro exposure, which led the EUR/CHF as low as 1.08.
The SNB will be watching the ECB meeting on Thursday closely. After wide criticism over negative rates at the G20, the ECB may chose not to cut rates further, and instead focus on the QE and other unconventional means to inject liquidity in the system. It might be the reason behind the recent strength on the euro ahead of the meeting, with EURCHF recovering above 1.09 and EUR/USD above 1.10.
Nevertheless, the euro should remain under selling pressure over the coming months as the refugee crisis and Brexit risks are mounting. Hence, we still believe that the SNB will need to reduce interest rates further in 2016.