The Swiss franc is slightly higher at the start of the week. In the North American session, USD/CHF is trading at 0.8852, up 0.20%.

Swiss inflation lower than expected

Switzerland’s inflation rate dipped to 1.2% y/y in February, down from 1.3% in January but above the market estimate of 1.1%. This was the lowest inflation rate since October 2021. Inflation eased for food, transport and alcohol but picked up for housing and clothing. Monthly, inflation surprised with a 0.6% gain in February, up from 0.2% in January and above the forecast of 0.2%. The core rate, which excludes food and energy, dropped to 1.1% y/y, down from 1.2% in January.

The Swiss National Bank meets only once each quarter and with the next meeting on March 21st, today’s inflation data could have a significant effect on the rate decision. Swiss inflation has been much lower than what other major economies are experiencing, and interest rates, which were in negative territory until mid-2022, are currently at 1.75%. Like most other major central banks, the SNB may be preparing to lower rates as inflation has fallen significantly.

When will the SNB loosen policy? The most likely date is September, although June is also a possibility, especially if inflation continues to downtrend in the coming months. The SNB can be counted on to proceed with caution and the surprisingly high jump in monthly inflation of 0.6% will put a damper on rate cut expectations. As well, SNB President Thomas Jordan is planning to leave in September and he may wish to leave easing to his successor.

The SNB is also mindful of the exchange rate and has intervened in the past when it felt that the Swiss franc was too high and hurting the Swiss export sector. The Swiss franc took a dive late in 2023 as the US dollar shot higher but that trend has reversed, as USD/CHF has jumped 5.5% since January 1.

USD/CHF Technical

• USD/CHF is testing resistance at 0.8835. Above, there is resistance at 0.8891
• 0.8778 and 0.8722 are the next support lines

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