Investors’ attention today turns to Swiss CPI and GDP data and the US manufacturing ISM PMI. A weaker-than-expected inflation reading and a mixed GDP report set the stage for two full-year SNB rate cuts by the end of the year.
Inflation in Switzerland slowed more than expected in August, supporting the case for another rate cut. Consumer prices rose 1.1% year-on-year, up from an expected 1.2% (CPI rose 1.3% in the previous month). The Swiss National Bank is likely to make its third rate cut this year. This outlook is supported by sluggish inflation and a strong Swiss currency. This is also likely to be helped by the strong GDP reading for Q2, which was largely due to the impact of international sporting events. SECO confirmed in a new statement that GDP (adjusted for sporting events) rose 0.5% quarter-on-quarter in 2Q24. This was faster than the 0.3% quarterly growth recorded in the previous two quarters and slightly above consensus expectations. Growth in other sectors was mixed, reflecting weak domestic demand.
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Create account Try a demo Download mobile app Download mobile appAt the moment, the money market estimates a 27% probability that the SNB will decide to cut rates by 50 basis points at its meeting on September 26. Naturally, a 25-basis point cut is fully priced in. Rates are expected to fall by a combined 50 basis points by the end of this year. Pricing for a significant rate cut in Switzerland could put pressure on the franc in the medium term, especially thanks to the negligible risk premium in the context of a carry trade strategy. However, it is worth remembering that the franc is considered a “safe haven” currency, so in times of uncertainty, these fundamentals may take a back seat, and the franc itself can act as a hedge against market turbulence.
The USDCHF pair is trading close to the 2-year low zone. Theoretically, strong interest rate cuts could weaken the Swiss franc and thus initiate a broader upward movement in the medium term. The most important resistance zones at this point could be the 50-, 100- and 200-day exponential moving averages (blue, purple and golden curves on the chart, respectively). On the other hand, it is worth remembering that the market is expecting interest rate cuts in the US earlier, so we may see large exchange rate fluctuations on this pair in the coming weeks. The key support point remains the local low from the end of August this year.
Source: xStation
