SNB slashes rate to zero, USD/CHF treads water amid holiday-thinned trade

The Swiss Franc (CHF) holds steady against the US Dollar (USD) on Thursday, showing muted price action as traders digest the Swiss National Bank’s (SNB) decision to cut its key policy rate by 25 basis points to 0%. With holiday-thinned liquidity due to the Juneteenth observance in the US , the USD/CHF pair remains broadly flat, lacking clear direction in subdued trading conditions.

At the time of writing, USD/CHF is trading around 0.8186, drifting just below its intraday high of 0.8215. The pair had been on the front foot for the past four sessions but is now struggling to break above immediate resistance at the 21-day Exponential Moving Average (EMA), currently seen near 0.8205.

The SNB’s expected move to cut rates to zero has solidified its position as the central bank with the lowest borrowing costs among major economies, underscoring its determination to address lingering disinflationary pressures and curb the Swiss Franc’s persistent strength. Market pricing now suggests a roughly 53% probability of another rate cut at the September meeting, reflecting investor expectations that policymakers might lean even more dovish if the economic backdrop softens further.

In its policy statement, the central bank underscored that inflationary pressures have now "decreased compared to the previous quarter" and pledged to stay “active in the foreign exchange market as necessary. Speaking to Reuters, Chairman Martin Schlegel acknowledged that moving deeper into negative rates would not come without costs, warning that such a step could pose challenges for savers, pension funds, and the real estate sector. Schlegel stressed that any decision to take rates below zero would be approached with caution and only if economic conditions deteriorate markedly.

Updated projections from the SNB show annual inflation is expected to average a mere 0.2% in 2025, before edging slightly higher to 0.5% in 2026 and 0.7% in 2027.

Meanwhile, the yield on the 10-year Swiss government bond climbed to 0.3%, lifted by a mix of escalating tensions in the Middle East and fresh policy signals from both the SNB and the US Federal Reserve. The modest rise in yields suggests that, while Switzerland’s inflation remains subdued, investors are factoring in a slight increase in the risk premium amid lingering geopolitical uncertainty and a less favorable global economic outlook.