CHF: Swiss inflation shows early signs of stabilization – Commerzbank

Swiss inflation data for November indicate stabilization, keeping pressure on further rate cuts low and supporting the Swiss Franc (CHF). Even with potential future easing, CHF strength could persist as falling inflation boosts its purchasing power over time, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

Long-term outlook remains positive for CHF

"There are signs suggesting that inflation in Switzerland is stabilizing, albeit at a low level. This assessment is unlikely to change following yesterday's figures, which showed a core inflation rate for November 0.1 percentage points lower than expected. The likelihood of further rate cuts, into negative territory, remains low for the time being. In the short term, this is positive for the Swiss franc."

"Would this change if inflation continued to decline and the market began to price in a more pronounced easing of monetary policy? In the short term, this could indeed put pressure on the franc. However, it should be fundamentally clear that the Swiss National Bank's (SNB) room for further rate cuts is extremely limited. Experience from the last 15 years has shown that the limit is reached at -0.75%."

"From a long-term perspective, further falling inflation could therefore actually be positive for the franc, as it (technically speaking) increases the currency’s purchasing power."