- The Swiss Franc exhibits minimal movement as traders anticipate the upcoming Swiss National Bank meeting scheduled for Thursday.
- Market sentiment reflects a 29% likelihood of the SNB implementing interest rate cuts.
- From a technical perspective, the 4-hour chart indicates the formation of a box range.
At the onset of the week, the Swiss Franc (CHF) experiences a marginal uptick, with gains of a few hundredths of a percent observed in its major currency pairs.
CHF traders are eagerly anticipating the key event of the week, namely the Swiss National Bank (SNB) March policy meeting scheduled for Thursday.
According to Reuters, there is a 29% probability of the SNB reducing its policy rate of 1.75% during the meeting. Should such a rate cut occur, it is anticipated that the Swiss Franc would weaken, as lower interest rates tend to attract diminished foreign capital inflows.
Swiss Franc vulnerable due to lower inflation
Switzerland’s latest inflation figures reveal a decline in the Consumer Price Index (CPI) for February, dropping to 1.2% year-on-year from the previous month’s 1.3%, as reported by the Federal Statistical Office.
This reading falls below the Swiss National Bank’s (SNB) expectations outlined during its December meeting, where it anticipated inflation to climb slightly to 1.4% in the upcoming months. Factors such as elevated electricity prices, rents, and a rise in VAT were anticipated to contribute to this increase.
Despite the SNB’s projection of an average inflation rate of 1.9% for 2024, the current inflation rate stands notably lower at 1.2%. However, on a monthly basis, the CPI registered a rise of 0.6% in February, compared to 0.2% previously.
Furthermore, inflation remains substantially below the SNB’s first-quarter forecast of 1.8%. Reuters highlights that consumer price inflation lags by 0.6 percentage points behind the bank’s projection, with core inflation at 1.1%, marking its lowest level since January 2022.
The SNB is set to unveil a fresh set of medium-term inflation forecasts on Thursday, potentially impacting monetary policy outlooks and the Swiss Franc (CHF). If the institution significantly revises down its inflation forecasts, it could signal a heightened likelihood of future interest rate cuts, exerting downward pressure on the Swissie.
Although the SNB often mirrors the policies of the European Central Bank (ECB), Switzerland’s inflation decline is outpacing that of the Eurozone. This divergence suggests the possibility of Switzerland taking preemptive measures, such as interest rate cuts, before its European counterpart.
Swiss Franc too expensive, says Jordan
In a February interview with Bloomberg, Thomas Jordan, the Chairman of the Swiss National Bank (SNB), expressed concern that the Swiss Franc has become overly expensive for Swiss businesses due to its appreciation in real terms.
The SNB is recognized for its practice of direct intervention in foreign exchange markets to control the value of the Swiss Franc. Recent data on Switzerland’s Foreign Exchange Reserves (CHFER) suggests a resurgence in reserves denominated in other currencies in 2024, implying that the SNB may be actively selling Swiss Francs to mitigate the exchange rate.
Technical Analysis: Swiss Franc against USD forming a box range
Since mid-February, the USD/CHF pair, indicating the strength of one US Dollar relative to the Swiss Franc, has been fluctuating within a relatively narrow range, spanning approximately from 0.8900 to 0.8740.
The pair is currently experiencing a short-term uptrend, with expectations of an eventual breakout leading to upward movement. However, facing significant resistance from a long-term trendline and the 50-week Simple Moving Average (SMA).
To confirm further upside potential, a decisive breach above the range highs at 0.8900 is necessary. Such a move would likely extend to an initial target at 0.8992, representing the 0.618 Fibonacci (Fib) ratio of the range’s height projected higher, followed by 0.9052, the full extrapolation of the range’s height.
Conversely, a clear break below the range low at 0.8729 could signal a short-term trend reversal and the onset of a deeper decline. The initial target for downward movement would be at 0.8632, representing the 0.618 Fib extrapolation of the range’s height, followed by 0.8577, which aligns closely with the January 31 lows at 0.8551, serving as another crucial support level to the downside.
