USD/CHF: SNB may not be done cutting rates - OCBC

The Swiss National Bank (SNB) cut rate 25bp to bring policy rate down to 0%, as widely anticipated. USD/CHF was last at 0.8165 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is flat

"SNB indicated that the decision was driven by a decrease in inflation and inflationary pressures. This was in line with our view that Switzerland is also grappling with a well-entrenched disinflation trend, as core inflation has reached a near four-year low, and the headline CPI is now negative on a yearover-year basis. SNB also lowered conditional inflation forecast for 2025 and 2026 to average 0.2% in 2025, 0.5% in 2026 (vs. 0.4% and 0.8% earlier forecasts, respectively)."

"Downward revision to inflation forecasts suggests that SNB may not be done cutting rates, but further policy decision may not be as forthcoming. SNB's Schlegel did say that policymakers can't exclude any measure including negative rates, but he also acknowledged that negative rates have challenges and big unwanted side effects. In our opinion, the room for further cut to negative interest rate policy (NIRP) is not ruled out but it may take more for them to policymakers to do it."

"For instance, a case of further downside surprise to inflation and/or another round of strong CHF may see policymakers revisit NIRP. USD/CHF eased, post-decision. Daily momentum is flat, while the rise in RSI moderated. Resistance at 0.8205 (21 DMA), 0.8240 levels (50 DMA). Support at 0.8120, 0.8040/50 levels (double bottom)."