The Swiss franc weakened against the US dollar on Thursday after the Swiss National Bank (SNB) slashed its interest rate by 50 basis points, marking its largest reduction in almost a decade. This move, aimed at countering weaker-than-expected inflation and growing global economic uncertainties, brings the policy rate down from 1.0% to 0.5%, its lowest level since November 2022.
Following the announcement, the dollar strengthened by over 0.5% against the franc, reaching 0.8885 francs, while the euro gained 0.7% to trade at 0.9339 francs. Swiss equities also rallied, with the main Zurich index climbing 0.45% on the day.
The central bank cited subdued inflation, heightened risks surrounding U.S. economic policies, and political uncertainties in Europe as key factors behind the decision. November inflation in Switzerland stood at 0.7%, well within the SNB’s target range of 0–2% since May 2023.
Schlegel also highlighted the bank’s readiness to adjust policy further to maintain price stability over the medium term. However, he acknowledged that the likelihood of negative rates in the future had diminished, stating:
Exporters, struggling with a stronger franc and sluggish demand from Europe and China, are expected to benefit from the reduced rate differential. UBS economist Alessandro Bee noted that the larger cut might also help preempt excessive franc appreciation.
Global Context and Comparisons
Schlegel emphasized that while the SNB remains focused on domestic conditions, it would consider the actions of other central banks. The European Central Bank was expected to cut rates later on Thursday, while the U.S. Federal Reserve is anticipated to follow suit on December 18.
Narrowing interest rate differentials pose additional challenges for the SNB, as they heighten the franc’s appeal as a safe-haven currency, further complicating the outlook for Swiss exporters.
Despite this, the SNB remains committed to using its primary tool—interest rates—while keeping the option to intervene in foreign exchange markets if necessary.
Looking ahead, The SNB’s decision underscores its proactive stance in addressing inflationary pressures and safeguarding economic stability. With Swiss inflation for 2025 forecasted at just 0.3%, the central bank has signaled its willingness to adapt policy further, ensuring Switzerland remains resilient amid global headwinds.
Technical Outlook – Swiss Franc
The Swiss franc slipped from the day’s high of 96.24 to 95.07 against the Indian Rupee on Thursday, down 0.88%. The pair turned negative following the Swiss National Bank’s rate cut announcement.
Since the start of the week, the pair has declined from a peak of 96.85 and was last seen trading at 95.07. The intraday price action formed a long bearish candlestick, signaling the potential for further weakness in the pair.
However, the pair must break below the significant support level of 94.95 to extend its decline toward 94.65–94.10. Conversely, any rise toward the 96.20–96.55 range is likely to face selling pressure.
Additionally, any weakness in the Indian Rupee could provide some support to the Swiss franc, but the overall trend remains bearish unless key support levels are breached or Rupee weakness intensifies.
Until then, Happy Trading!
Commodity Samachar Securities
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