As we expected, the Swiss National Bank (SNB) cut its key rates by 50 basis points to 0.5% on December 12, surprising most economists with its magnitude. For our part, we felt that it needed to surprise the consensus with more decisive action if it wanted to counter the appreciation of the franc and the risk of deflation.
It has therefore decided to act to protect Swiss exporters from the decline in export competitiveness in a context marked by growing threats to the future of international trade and increases in customs tariffs implemented by the Trump administration in 2025 .
The SNB also suggests that further declines are still possible depending on the situation and that a temporary evolution of inflation outside the 0% to 2% zone would be tolerated, thus evoking the fear of a negative CPI, but with a low probability of negative policy rates. The SNB also remains ready to act on the foreign exchange market. The Swiss franc had benefited from its role as a safe haven against the euro, particularly in recent months due to political uncertainty in France and Germany, as well as the drop in rates from the European Central Bank. The new president, Martin Schlegel, sent a strong message to the markets which began to adjust their expectations by significantly reducing their expectations of a rise in the franc.
Since we announced the possible cut of 50 basis points in the SNB and we mentioned a probable reversal of the trend of the franc at the beginning of October, our currency has already depreciated by -6.4% against the US dollar, but is starting to just barely weakening against the euro. We believe the franc is likely to weaken more significantly against the US dollar (USD), Canadian dollar (CAD), Australian dollar (AUD) and British pound (GBP) over the coming months. The high yield differential for these currencies will remain in their favor. They should overall appreciate by around 3% to 6%.
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