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Monetary easing in Switzerland could stop the crisis US dollar versus Swiss franc Bears, but will the National Bank cut interest rates at the June 20 meeting? Let’s discuss it and make a trading plan.
Weekly fundamental forecast for the franc
heads or tails? Investors may also flip a coin to understand whether the Swiss National Bank will cut interest rates at its June 20 meeting or keep them unchanged at 1.5%. After the start of monetary easing in March, the franc went from being the best G10 performer in 2023 to an offshore currency. However, uncertainty about further monetary easing by the SNB, rising political risks in Europe, slowing inflation in the US, and increasing volatility of the Swiss currency, allow us to speculate that the SNB may move towards further monetary easing. US dollar versus Swiss francThe uptrend may reverse.
Derivatives indicate a 50-50 chance of a key interest rate cut. These estimates peaked at 97.7% in early April but fell to 33.6% following tough comments from Thomas Jordan. The Swiss central bank president says the weakness of the franc is the main driver of the acceleration in the CPI, which the SNB can counter with currency interventions. Investors immediately rushed to look for confirmation and found it. HSBC says data on currency reserves at the Swiss National Bank indicates that the national bank has either shifted to buying the franc or significantly reduced sales.
Chances of an interest rate cut by the Swiss Central Bank in June
Source: Bloomberg.
As a result, the franc rose from the ashes and topped the G10 currency race for thirty days. Moreover, rising European political risks, expressed in the rising Franco-German bond spread, support the franc as a safe-haven asset.
The market is unsure whether the SNB will continue to ease monetary policy in June. A stronger-than-expected economy and inflation, which stabilized at 1.4% in May, favor keeping the key interest rate at 1.5%. This number is consistent with the central bank’s expectations for the second quarter. We can confidently bet on a key interest rate cut if the CPI is lower.
Inflation trends in Switzerland
Source: Bloomberg.
The main arguments in favor of continuing monetary easing are the strength of the Swiss franc compared to the previous meeting and investors’ overreaction to Thomas Jordan’s words about currency interventions. The head of the Swiss Central Bank could speak virtually; He is unlikely to be interested in getting involved in Forex life at the moment. Defenders of this version admit that they are puzzled by the market reaction to Thomas Jordan’s letter.
According to Bloomberg, the National Bank prefers to wait to see if there are any inflationary surprises. If not, the monetary policy easing cycle could resume. UBS has a similar view and has completely changed its forecast for a key interest rate cut in June.
Weekly trading plan for the US dollar against the Swiss franc
Therefore, the market needs to know what to expect from the SNB. Another step towards monetary easing may pay off US dollar versus Swiss franc Up to 0.9, where the pair can be sold. Conversely, keeping the price at 1.5% will allow us to sell with targets at 0.88 and 0.87.
USDCHF price chart in real time mode
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