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Swiss surprise

The Swiss National Bank lowered rates by 25 bp to 1.5% today which caught the market by surprise. SNB Chair Jordan suggested that the rate cut was not a ‘leaving gift’ (he is stepping down from leading the SNB in September) but rather part of their efforts to meet their inflation target. The chart below shows headline CPI (Y/Y), which peaked near 3.5% Y/Y in 2022 and fell to 1.2% Y/Y last month.

This makes the SNB the first of the major central banks to reverse their rate hike cycle and actually start to lower rates. While we have been looking for the SNB to cut rates this year, to be fair, we were expecting them to do this in H2 2024.


However, the SNB rate cut is helping to ‘square the circle’ of our FX call. We have been beating the drums on our ‘weaker CHF in 2024’ view and are still looking for the EUR/CHF cross rate to break above parity for CHF 1.05 and even CHF 1.10. This may keep USD/CHF from breaking lower and even drag it a touch higher vs. the USD. But, our EUR/USD view for a push to $1.20 over the coming cycle can create a drag on USD/CHF upside hopes. However, if the SNB is happy enough to trim rates, and if the market perceives a weaker CHF bias in place – watch for CHF weakness to build!


The weekly chart below shows the EUR/CHF cross rate which is turning above the 13 and 50-week moving averages. Falling line resistance is giving way (short term) and the focus is on a rally to the bigger falling line near CHF 1.0250 next. The 38.2% retracement of the fall from CHF 1.20+ comes in near CHF 1.03 which will make this an interesting area to test. See if dips hold above the 50-week moving average now (near CHF 0.96) to keep the focus on the upside.

A weaker CHF is expected to help out our ‘Trade of the year’ idea of a top forming in CHF/JPY. The Bank of Japan rate hike from -0.1% to a 0.0%-0.1% range saw the JPY sell off in a ‘buy the rumour, sell the fact’ reaction. This is expected to be reversed though as the BoJ is expected to further remove stimulus this year, and may protest (along with the Ministry of Finance) if the market tries to push USD/JPY well above the Y150/Y152 resistance area towards Y160/Y180. While the Fed kept rates steady this week, a rate cut in June is not off the table. A pullback to Y140 and then the Y130/Y126+ area is expected this year, which should leave CHF/JPY to fall towards Y140/Y137. Time will tell…


Gerry Celaya, Chief Strategist


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