USD/CHF steadies above 0.8250 as SNB Chairman flags concern over strong Swiss Franc and low inflation
- USD/CHF hovers near 0.8280 after Tuesday’s nearly 1% rally, supported by a firm US Dollar.
- The US Dollar Index DXY remains firm near 99.60 ahead of the release of the FOMC minutes later on Wednesday.
- SNB Chairman says negative inflation is possible, but the central bank’s focus is on medium-term price stability.
The Swiss Franc (CHF) is moving sideways against the US Dollar (USD) on Wednesday, with the USD/CHF pair hovering near the previous day’s high after a solid almost 1% climb driven by renewed US Dollar strength. At the time of writing, the USD/CHF pair is trading slightly lower from intraday highs but maintains a foothold above the key 0.8250 psychological mark, last seen around 0.8275 during the European session.
Similarly, the US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, remains steady. Upbeat US Consumer Confidence data released on Tuesday added to the Dollar’s strength, helping the DXY to hold firm near 99.50 ahead of the FOMC minutes due later in the day.
However, demand for traditional safe-haven assets, such as the Swiss Franc, remains underpinned by lingering US fiscal concerns, ongoing global trade uncertainties, and the unresolved geopolitical crisis between Russia and Ukraine.
Adding to the cautious mood, Swiss National Bank (SNB) Chairman Martin Schlegel cited subdued inflation, a strong Swiss Franc, and increasing market volatility as growing risks to price stability while speaking at an event in Basel. This reinforces the central bank’s readiness to take further action on it.
Schlegel noted that “even negative inflation figures cannot be ruled out in the coming months,” but added that this would not necessarily prompt a policy response. “The SNB does not necessarily have to react to this. Our focus is not on the current rate of inflation, but rather on price stability over the medium term,” he said.
Swiss inflation eased to 0.0% in April, touching the lower bound of the SNB’s official 0–2% target range and reinforcing expectations of further monetary easing. Markets widely anticipate the central bank will deliver another interest rate cut at its June 19 policy meeting, which would bring the benchmark rate down to zero.
According to Reuters, market pricing currently reflects a 75% probability of a 25 basis point (bps) cut to 0.00%. There is also a 25% chance that the SNB could move more aggressively with a 50 bps cut, pushing rates back into negative territory at -0.25%.
Swiss economy FAQs
Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.
Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.
As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.
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