CHF to USD Rate Little Changed After the SNB Rate Cut

The volatility in the CHF to USD exchange rate has picked up, as markets react to the Swiss National Bank’s (SNB) latest policy decision. With both the SNB and the Federal Reserve adopting dovish approaches, traders have been struggling to determine which central bank’s dovish stance will have a greater impact on the exchange rate.

Last week, the Federal Reserve lowered interest rates by 50 basis points as part of its quantitative easing efforts. While this move was largely expected, it still caused the USD/CHF pair to drop by 50 pips, briefly testing the 0.84 level before rebounding. The Fed’s forward guidance suggests two additional rate cuts of 25 basis points each before the end of the year, signaling caution to prevent potential economic slowdowns.

USD/CHF Chart H4 – Range Bound Price Action

Meanwhile, the SNB is also expected to ease its monetary policy, with analysts anticipating a third 25-basis-point cut. Some had forecast a more significant cut of 50 basis points, which has made traders cautious as they await the SNB’s final decision. As a result, the USD/CHF pair has been oscillating within a narrow range, with markets unable to confidently determine whether the dollar or the franc will weaken further.

The tug-of-war between risk-on sentiment, which typically favors the dollar, and risk-off periods, which support the franc, is adding to the uncertainty. Markets continue to search for a clear direction as they assess the evolving dovish policies of both central banks. Today we saw a 50 pip dip in USD/CHF after the SNB rate cut, so nothing too major.

Swiss National Bank September 26 Policy Meeting

• Rate Cut: The SNB lowered its key policy rate by 25 bps, from 1.25% to 1.00%.
• FX Market Intervention: The SNB stated it is prepared to intervene in the FX market if needed.
• Decreased Inflation Pressures: Inflationary pressures have eased significantly compared to the previous quarter, partly due to the appreciation of the Swiss franc.
• Inflation Forecast Revision: The stronger franc contributed to a downward revision in inflation forecasts.
• Easing Global Inflation: Inflation pressures abroad are expected to gradually ease in the coming quarters.
• Potential for Further Rate Cuts: The SNB indicated that further rate cuts may be necessary to maintain price stability over the medium term.
• Swiss Economic Growth Projections:
  • 2024: Growth forecast remains at 1.0%.
  • 2025: Growth forecast remains at 1.5%.
• Inflation Forecasts:
  • 2024: Revised down to 1.2% (previously 1.3%).
  • 2025: Revised down to 0.6% (previously 1.1%).
  • 2026: Revised down to 0.7% (previously 1.0%).

The SNB hasn’t made any aggressive moves to curb the franc’s strength, although they did reiterate their readiness to intervene in the foreign exchange market if necessary. They stopped short of calling the franc “overvalued.” In terms of inflation, the SNB’s recent projections suggest that they have effectively achieved their goal of controlling inflation, as the latest data reflects a notable decline in inflationary pressures. This indicates their confidence in having stabilized price levels.

USD/CHF Live Chart