USD/CHF Subdued as the SNB Sticks to Small Rate Cuts

USD/CHF Analysis

The Swiss National Bank was the one to kick-start the global shift towards less restrictive policies back in March and today it delivered its third consecutive 25 bps cut, bringing rates to 1% and staying at the forefront of monetary easing. Policymakers also kept more cuts in play, saying that these "may become necessary in the coming quarters" to achieve price stability ^[1]. However, the SNB's path is timid relative to its US counterpart. Despite the belated pivot, the Fed delivered a jumbo half-percentage cut and pointed to an aggressive easing path ahead. ^[2]

The SNB's cautious approach and the anticipation for massive Fed easing, sparked a decline in USD/CHF since May, erasing almost all of the gains from earlier in the year. The pair is cautious today after the SNB decision and the downside bias is intact below the EMA200 (black line). This sustains risk for fresh 2024 towards 0.8333-0.8299, although prolonged weakness below it is not easy.

Swiss policymakers resisted a bigger cut today, but they may not be able to avoid an acceleration for long. Inflation eased to 1.1% in August and they expect a drop to 0.6% next year, while the elevated Franc harms exports and ads to the pressure for bigger policy moves and/or FX intervention. Despite a post-pandemic shift, the SNB has generally sought to keep the Swiss Franc from appreciating and has kept rates below zero for most of the past ten years. Moreover, the Fed's frontloading creates risk of inflation persistence that could lead to fewer cuts down the road.

USD/CHF can push above the EMA200 (black line) and the 23.6% Fibonacci of the May September slump, to pause the bearish momentum. This could send it towards the 38.2% Fibonacci, but we are cautious around its ascending prospects and the upside looks unfriendly.