EUR/CHF falls despite soft Swiss CPI print - Danske Bank

April's downside surprise in Swiss inflation has reinforced expectations of a June rate cut by the SNB, with markets now entertaining the possibility of a return to negative interest rates as the strong franc and global uncertainties weigh on growth and price stability, Danske Bank's FX analysts report.

Swiss inflation miss sparks talk of SNB rate cuts

"Despite a significant downside surprise to Swiss inflation for April, EUR/CHF ended the day lower. Headline came in at 0.0% y/y (cons: 0.2%, prior: 0.3%) and core at 0.6% y/y (prior: 0.9%, cons: 0.8%). This falls significantly below the SNBs expectation for Q2 of 0.3% y/y. The low inflation print reflects the recent decline in energy prices but can also largely be attributed to the recent strengthening of the CHF, which puts significant downward pressure on imported inflation. "

"More broadly, price pressures remain very muted in Switzerland. The growth backdrop has likewise worsened for the Swiss economy the past month with trade war uncertainty and the strong CHF acting as a headwind for the manufacturing sector. Markets reacted by pricing just above 30bp worth of cuts for the next SNB meeting in June and 45bp for 2025 and hence a return to a negative interest rate policy."

"We stick to our long-held call of the policy rate being cut to 0% in June. However, following yesterday's print the risks of a return to NIRP has notably increased. We expect the SNB to resort to FX intervention before negative territory is reached."