The Swiss franc lost ground on Thursday, penalized by the strengthening of expectations of a rate cut by the Swiss National Bank (SNB) at its September meeting. At around 09:20 GMT (11:20 in Paris), the Swiss currency was down 0.20% against the greenback, at 0.8540 Swiss francs to the dollar, and 0.26% against the single currency, at 0.9410 Swiss francs to the euro.
The Swiss franc “lost a few feathers against the dollar and the euro after rumors that the SNB could lower its rates by 0.50 percentage points at its next meeting” on September 26, comments John Plassard of Mirabaud, and not just by 0.25 points as anticipated by many analysts.
The role of US inflation
Earlier this month, the dollar hit its lowest level of the year against the Swiss currency, at 0.8375 Swiss francs, a level not seen since late December 2023. The strength of the Swiss currency against other currencies is proving to be a real headache for its central bank, which is reinforcing market expectations that the SNB will soon decide to cut its interest rate to ease it.
A strong currency does indeed make the country’s exports more expensive, making its products more expensive for foreign buyers, which affects trade; and while it also lowers the cost of imports, price increases are already under control in Switzerland. Inflation there fell in August to 1.1% year-on-year (from 1.3% the previous month), increasing bets on another interest rate cut in September.
The decline in inflation in Switzerland had already allowed its central bank to begin easing its monetary policy from March 2024. It then made an initial reduction of a quarter of a point, then another quarter of a point in June to bring its key rate back to 1.25%.
Eyes on the ECB
Like the yen, the Swiss currency also suffered on Thursday from a rise in the dollar, after a slowdown in American inflation in August, broadly in line with analysts’ expectations, according to the CPI index published on Wednesday. Currency traders will remain attentive on Thursday to the monetary policy meeting of the European Central Bank (ECB), whose decision is published at 12:15 GMT. Barring any surprises, the European monetary institution should reduce its key rates by 0.25 percentage points, after an initial reduction in June.
“Currently, the market expects another rate cut” by the ECB by the end of the year after the one anticipated on Thursday, but is wondering about the pace it will choose to adopt, notes Kathleen Brooks, of XTB. However, the analyst points out, “the ECB is still divided” within itself, and “it is therefore possible that it will not give any future guidance”, and will rely “on more economic data to guide its next decisions”. Also expected at 12:30 GMT is the producer price index (PPI) for August in the United States.
