The Swiss franc has edged higher on Friday. In the European session, USD/CHF is trading at 0.8374, up 0.21% on the day.
Is SNB heading back to a negative rate policy?
The Swiss National Bank maintained a negative rate policy from 2014-2022 and only lifted rates into positive territory when inflation spiked during the covid pandemic. Interest rates rose as high as 1.75%, much lower than other major central banks. In the new era of falling inflation and weaker global growth, the SNB has been aggressive and has cut rates to just 0.25%.
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The SNB prefers rates at low levels in order to keep a lid on the Swiss franc appreciating, which would hurt Switzerland’s export sector. The Bank is keeping a worried eye on the Swiss franc, which has surged as much as 12% since Feb. 1. The SNB is also concerned about falling inflation, which dropped to 0% in April, a four-year low. The SNB doesn’t want to see inflation fall below its target of 0%-2%.
The SNB has indicated that it will continue to lower interest rates to respond to the Swiss franc’s appreciation and falling inflation. SNB Chair Martin Schlegel said last week that the Bank preferred not to return to negative rates but that it would do so if necessary. The SNB meets quarterly and will hold its next meeting on June 19.
Another option which the SNB has to weaken the Swiss currency is to intervene in the foreign currency market. This would help to raise inflation as a weaker Swiss franc makes imports more expensive. The SNB has kept intervention in its tool box but has largely refrained from intervention, preferring to lower interest rates in order to curb Swiss franc appreciation and to boost inflation.
US inflation expectations jump, consumer sentiment sags
US consumers are becoming less optimistic about the economy and more worried about inflation. UoM inflation expectations for May jumped to 7.3%, the highest since Nov. 1981. This followed the April reading of 6.5% and was above the market estimate of 6.6%. The UoM consumer sentiment index eased to 50.8, down from an upwardly revised 52.2 in April and shy of the market estimate of 53.4.
USD/CHF Technical
- USD/CHF tested resistance at 0.8377 earlier. Above, there is resistance at 0.8409
- There is support at 0.8328 and 0.8296
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USDCHF 1-Day Chart, May 16, 2025
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