SNB is in the spotlight today as it prepares to announce rate decision which is seen as a close call. Market participants divided on whether another rate cut will be delivered, marking the second consecutive quarterly reduction.
A recent Reuters poll conducted between June 12-17 highlights the uncertainty: 22 out of 33 economists expect SNB to lower its main interest rate by 25 basis points to 1.25%, while 11 predict that SNB will hold rates steady.
The case for a rate cut is supported by the fact that inflation is currently within SNB’s target range. Additionally, the central bank views its current policy stance as restrictive. However, Chair Thomas Jordan has flagged a “small upward risk” to the inflation outlook. Should this risk materialize, it would imply that the monetary policy stance might become more accommodative than SNB intends.
Adding another layer of complexity is the recent strength of Swiss Franc, which has surged due to political instability in France. A stronger Franc can help mitigate import-driven inflation, easing some of the inflationary pressures that concern SNB. On the flip side, the central bank might opt for a rate cut to weaken the Franc, thereby providing additional support to the Swiss economy.
There is no sign of bottoming for EUR/CHF yet after the steep decline since late May. Further break from 61.8% retracement of 0.9252 to 0.9928 at 0.9510, as prompted by less dovish than expected SNB, could trigger more downside acceleration to retest 0.9252 low. Nevertheless, a bounce from current level, with break of 0.9566 minor resistance, would suggest that selling climax is past and bring consolidations first.
