Zurich, Switzerland – The Swiss franc showed signs of weakening as major currencies gained ground against it in early morning trading in London. The Euro saw a 0.3% increase, while the U.S. dollar rose by 0.5% against the Swiss currency. The shift followed an announcement by the Swiss central bank regarding its inflation forecast.
In response to the decision, the Swiss central bank set its conditional forecast for inflation at 1.3% for 2024, 1.1% for 2025, and 1.0% for 2026. These projections were based on an assumption of a 1.25% SNB interest rate over the forecasted period. The inflation rate in Switzerland remained flat at 1.4% in May and is anticipated to maintain the same level throughout the entirety of 2024 as per the latest projections provided by the SNB.
The Swiss central bank also stated its expectations for economic growth, predicting around 1% growth in 2024 and approximately 1.5% in 2025. While forecasting slight increases in unemployment rates and slight decreases in production capacity utilization, the bank highlighted gradual improvement in economic activity over the medium term, driven by stronger demand from abroad.
Analysts at Nomura, in a note dated June 14, described the potential rate cut decision by the SNB as finely balanced, citing weak underlying inflation momentum. This sentiment, indicating confidence in inflation convergence towards the midpoint of the target range, supports the likelihood of a future cut, especially given Switzerland’s historically low interest rates.
Switzerland holds the second-lowest interest rate among the Group of Ten democracies, following Japan. The country made headlines back in March for being the first major economy to cut interest rates, with subsequent moves by the European Central Bank. Speculation now surrounds the possibility of a third rate cut by the SNB later in the year, a sentiment echoed by FX markets analyst Kyle Chapman, who anticipates additional cuts in the coming quarters.
With the Swiss franc potentially facing further pressure due to expected monetary policy adjustments, global market participants are closely monitoring central banks’ decisions. The upcoming moves by the U.S. Federal Reserve and the Bank of England will be particularly significant, especially in light of recent developments in inflation rates. As the economic landscape continues to evolve, the Swiss franc remains in a precarious position, poised to react to shifts in global monetary policy.