Swiss Franc vulnerable, HSBC says

Swiss Franc upside could be limited, according to analysts at HSBC, who see the Swiss National Bank’s (SNB) reluctance to implement policies to strengthen the Franc as well as an environment of overall uptrending equity markets as key headwinds. 

In an interview with Bloomberg in February, SNB Chairman Thomas Jordan said the Swiss Franc might now be too strong. The CHF, he said, had been rising in nominal terms for several years, and that this had been “helpful” as it had “shielded us from inflationary pressures from abroad.” Jordan added, however, that at the end of 2023 the Franc had started to rise in real terms, and that this could be a problem for Swiss businesses. 

Recent lower-than-expected core inflation data in Switzerland, which fell to 1.1% in February – lower than the 1.2% previous – further suggests the SNB will not need to raise interest rates.
 

On the Horizon

The next key event for the USD/CHF is likely to be the US Consumer Price Index (CPI) data for February, published on Tuesday at 12:30 GMT. 

The Consumer Price Index ex Food and Energy is forecast to moderate to 3.7% YoY – from 3.9% previously, and 0.3% MoM from 0.4% previously. 

The headline CPI figure is forecast to come in at 3.1% YoY, unchanged from the previous month, and at 0.4% MoM from 0.3% in the previous month. 

The result of the CPI data will be key in factoring into when the Federal Reserve (Fed) is expected to start cutting interest rates. A lower-than-expected result could lead to earlier rate cuts from the Fed, which would have a negative impact on USD as it reduces foreign capital inflows. 

According to the CME FedWatch Tool, which calculates a market-based expectation of when the Fed will begin reducing its Fed Funds Rate, the probability of a first cut in March is 4%, in May 31.5%, and the chances of a cut by June are 73.8%.