Swiss franc slips as inflation falls

• Swiss inflation declines by 0.1%

The Swiss franc has extended its losses on Tuesday. In the European session, USD/CHF is trading at 0.9212, up 0.31%.

Swiss inflation declines by 0.1%

Major central bankers have their hands full as they continue to battle stubborn inflation. The Swiss National Bank is also concerned about inflation, but other central bankers would love to have the SNB’s problem, as inflation remains within the SNB’s target range of 0%-2%.

Today’s Swiss CPI release showed inflation declining by 0.1% m/m in September, compared to a gain of  0.2% m/m in August. On an annual basis, inflation ticked higher to 1.7%, up from 1.6% in August. The core inflation rate decreased to 1.3% y/y, down from 1.5% in August.

This inflation data should be encouraging for the SNB, which has likely wrapped up its rate-tightening cycle. The central bank raised rates five straight times but took a pause at last month’s meeting and left the benchmark rate at 1.75%. This surprised the markets, which had expected a quarter-point hike. The SNB’s tightening has cooled down the economy and the decline in September inflation supports the SNB continuing to pause at the next meeting in December. The markets may even be looking for a rate cut, but I don’t expect the SNB to start trimming rates until it is convinced that inflation will remain low.

The SNB views currency intervention as a tool to help stabilize the exchange rate, and a Reuters report last week found that the SNB sold $44.2 billion worth of foreign currencies in the second quarter, the largest sale since the SNB started keeping records of its forex transactions in 2020. The SNB’s strategy has been to boost the Swiss franc, which has lowered the price of imports, thus dampening inflation.

USD/CHF technical

• USD/CHF is putting pressure on resistance at 0.9231. Above, there is resistance at 0.9310.

• 0.9145 and 0.9067 are providing support.