Swiss Franc Down After the SNB Rate Meeting

For four consecutive months, the CHF to USD rate steadily climbed, gaining approximately 9 cents. Despite efforts by buyers, USD/CHF failed to surpass the resistance level of 0.9240, and by early May, it began to decline once again. This week, the USD/CHF rate dropped below the crucial 0.90 mark and also breached the 50-day Simple Moving Average (SMA) marked in yellow. Market attention was keenly focused on the Swiss National Bank (SNB) meeting held this morning, following their decision to implement a 25 basis point rate cut in their previous meeting.

Following the release of a weak US Consumer Price Index (CPI) report last Wednesday, the USD experienced broad-based weakness as markets priced in expectations for two rate cuts by the end of the year. However, this sentiment reversed for a short while when the Federal Open Market Committee (FOMC) announced a decision that was somewhat more hawkish than anticipated. The FOMC’s dot plot foresaw just one rate cut for in 2024.

But USD/CHF resumed its decline as a risk-off sentiment prevailed, bolstering the Swiss Franc as investors sought safe-haven assets. Besides that, comments from SNB Chairman Jordan further added to the bearish sentiment for tis forex pair He noted that if emerging inflation risks in Switzerland materialized, they could potentially weaken the Swiss Franc and force them to intervene in the FX market.

USD/CHF Chart – Heading Back Up Toward 0.90

Today we had the SNB meeting which took place earlier in the European session. The Swiss National Bank (SNB) has cut its key policy rate by 25 basis points, lowering it from 1.50% to 1.25%. This decision aligns with market expectations, though the Swiss franc weakened following the announcement, with USD/CHF rising by 0.5% to 0.8885 on the day.

The SNB also expressed readiness to intervene in the foreign exchange market if needed, emphasizing its commitment to maintaining appropriate monetary conditions. The bank highlighted that renewed geopolitical tensions could dampen global economic activity and noted that domestic services are currently the main driver of inflation in Switzerland. Alongside the rate cut, the SNB marginally lowered its inflation projections for the coming years, with 2024 now forecast at 1.3%, 2025 at 1.1%, and 2026 at 1.0%. This adjustment has contributed to the softer franc in response to the decision.

SNB Rate Cut and Economic Outlook:

• Key Policy Rate Cut:

  • New Rate: 1.25%
  • Previous Rate: 1.50%
  • Reduction: 25 basis points

• Monetary Policy and FX Market Intervention:

  • SNB is prepared to intervene in the foreign exchange market if necessary.
  • The bank aims to maintain appropriate monetary conditions to ensure price stability.

• Geopolitical and Inflation Outlook:

  • Rising geopolitical tensions could weaken global economic activity.
  • Inflation in Switzerland is currently driven by higher prices for domestic services.

• Inflation Projections:

  • 2024: 1.3% (previously 1.4%)
  • 2025: 1.1% (previously 1.2%)
  • 2026: 1.0% (previously 1.1%)

USD/CHF Live Chart