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Swiss Franc recovery halts with SNB monetary policy coming into focus

  • USD/CHF ticks up above 0.8220, trimming losses following a two-day reversal.
  • The Swiss Franc loses ground with investors shifting their focus to the SNB monetary policy decision.
  • Fed hawkishness has increased the monetary policy divergence with the dovish SNB.

The Swiss Franc (CHF) nurses minor losses against the US Dollar (USD) to pare some of the previous two trading days’ recovery. The USD/CHF pair hesitates above 0.8220 in a quiet trading session on Monday in the absence of key macroeconomic releases and with traders eyeing the Swiss National Bank’s (SNB) monetary policy decision, due next Thursday.

Trading volumes remain at low levels on Monday with the Japanese market closed for bank holidays, while investors ponder a wave of rate hikes by some of the world’s major central banks, including the Federal Reserve (Fed) last week.

The US central bank hiked interest rates by 25 basis points, pushing the Federal Funds rate to three-year highs at the 3.75%-4% level. The surprise, however, was the hawkish tone of Chairman Kevin Warsh, who reaffirmed the Fed’s commitment to bring inflation to the 2% target, and boosted market expectations of further interest rate hikes in the coming months.

The SNB is expected to leave rates at 0%

This week, the focus shifts to the Swiss National Bank, which is expected to leave interest rates at the current 0% for the rest of the year, and most likely, at least during the first half of 2027.

The main interest of the event will be President Martin Schlegel’s Press release for hints of a potential policy change in the mid-term. Schlegel observed earlier this month that inflationary pressures have increased somewhat in recent months, but that it remains within the stability range, which allows the bank to stand pat for some time.

This stance contrasts with the hawkish shift performed by the Fed, which has highlighted the monetary divergence with the SNB and presented the CHF’s candidacy as a funding currency for carry trades, especially now that the BoJ seems resolved to keep tightening borrowing costs. This might bring sustained bearish pressure to the Swissie.

In the calendar on Monday, the main event will be Chicago Fed President Austan Goolsbee’s speech at the Official Monetary and Financial Institutions Forum event in London. Goolsbee will speak about “Monetary policy in an uncertain world,” and might provide some clues about the timing of the next Fed rate hike.

SNB FAQs

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.

Author

Guillermo Alcala

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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