A Sharp Slowdown for the Swiss Franc

The U.S. Federal Reserve, which meets next week, is widely expected to lower interest rates by 0.25%, as predicted by experts.

As the weekend approaches, you might find some inspiration in our suggestions at the end of this analysis, if you haven’t yet made any plans. Whatever you decide to do, make sure to bundle up—it’s going to be cold.

Two Currencies in a Single Day

This week marked a rare occurrence: the simultaneous influence of two major central banks on the EUR/CHF exchange rate. On the same day—a rarity—the SNB and the ECB announced their respective monetary policy decisions.

Early in the morning, true to their habit of rising early, Swiss central bankers took the market by surprise with a substantial cut to their key interest rate, reducing it from 1.00% to 0.50%. This move significantly exceeded market expectations, as nearly all Bloomberg-polled experts had forecast a 0.25% cut.

Rationale Behind the SNB’s Move

• Analysts view this decision as an attempt to curb the strength of the Swiss franc and deter investors from seeking refuge in the currency during times of geopolitical crises and uncertainty.
• Will this discourage investors from turning to the Swiss franc as a safe haven? The SNB’s message is clear: it is prepared to lower interest rates as much as needed and to sell Swiss francs directly to control the currency’s exchange rate.

Is this a bluff? Time will tell.

The SNB Sets the Tone for EUR/CHF

This interest rate cut is the largest since 2013. SNB President Martin Schlegel justified the decision, stating that there was no reason to delay the adjustment. The restrictive monetary policy that emerged during the inflationary period is now a thing of the past.

According to Schlegel, underlying inflationary pressures are under control, with November’s inflation rate at 0.7% and energy costs expected to decline further. The president also pointed out that the Swiss economy is struggling to maintain growth, particularly due to a decline in industrial and commercial orders from Germany, Switzerland’s primary European export partner.

This easing in monetary policy will likely provide Swiss businesses with much-needed breathing room, enabling them to access cheaper financing. 

EUR/CHF: A Sudden Surge

The EUR/CHF exchange rate immediately surged by over 70 pips, climbing from 0.9280 to 0.9338, before gradually retreating toward technical support at 0.9304. The exchange rate has since been rising again.

Investors had been anticipating a 0.25% rate cut from the ECB later in the day. As expected, the ECB delivered, aligning with market expectations and boosting the EUR/CHF pair by an additional 50 pips compared to the morning. Meanwhile, the EUR/USD exchange rate gave up some ground.

A Weaker Swiss Franc?

According to Jordan Rochester, Chief Strategist at Mizuho Financial Group, the SNB’s rate cut and the statements from its new president make it unlikely that the Swiss franc will maintain its strong performance.

Key Insights:

• In 2023, the Swiss franc was the second-best-performing G10 currency, trailing only the British pound.
• However, this new monetary stance could weaken the franc’s appeal in 2024, particularly if global investors shift toward other safe-haven assets.

Implications for Businesses and Markets

• For Swiss Businesses: Lower interest rates mean easier access to credit, which could help boost economic activity.
• For Currency Markets: The SNB’s decision signals a reduced appeal for the Swiss franc as a refuge currency, which could lead to a reallocation of capital to other assets.

If the SNB continues its dovish monetary policy, the EUR/CHF could maintain its upward trajectory.

Looking Ahead

The Federal Reserve’s meeting next week is likely to confirm a widely expected 0.25% rate cut, further shaping the landscape of global monetary policy.

Weekend Tips: As temperatures drop, be sure to dress warmly. And for traders, keep an eye on the EUR/CHF exchange rate—volatility often creates opportunities.

Have a great weekend, and stay tuned for more updates on the forex markets!

Sidebar on Global Concerns

Geopolitical tensions could complicate the Swiss National Bank’s (SNB) efforts. Mark Rutte, NATO’s chief, recently sounded the alarm over Russia’s increased production of armaments. According to him, Russia has shifted to a war economy, allocating one-third of its budget to weapons manufacturing. Rutte warns that Europe has less than five years to prepare and argues that the 2% of GDP currently dedicated to defense spending is inadequate for today’s realities. He advocates for an increase to 3% of GDP for European nations to address the threat effectively.

Interestingly, Mr. Rutte’s stance aligns closely with that of Donald Trump on defense matters.

Will the Swiss Franc Yield to the Euro?

Amid such circumstances, it will require significant effort from the SNB to manage the exchange rates of the Swiss franc against foreign currencies. However, yesterday, investors began converting Swiss francs into euros. Despite this, the prevailing uncertainty and the poor health of the European economy seem to have restrained the EUR/CHF’s ascent.

For example, on September 26, during the SNB’s previous rate cut of 0.25%, the EUR/CHF exchange rate surged by 90 pips. Notably, that decision occurred before the most recent election.

The SNB’s Forward Guidance

    The SNB explained that its decision was also influenced by inflation forecasts for 2025. While inflation slowed to 1.1% at the end of 2024, projections suggest a decline to 0.3% in 2025, with a modest rebound of 5 basis points the following year. These forecasts are based on maintaining the current 0.50% policy rate, coupled with an estimated GDP growth of 1% to 1.5% in 2025 (2024 is expected to close with a 1% growth rate).

    Reading between the lines, it appears the SNB has no immediate plans to lower rates further, which could help maintain the Swiss franc’s current exchange rate levels. However, the SNB remains committed to preventing the franc from appreciating uncontrollably during crises.

Swiss Economy’s Resilience

    Despite rising challenges, the Swiss economy remains robust, as emphasized by SNB President Martin Schlegel. This economic health provides the SNB with considerable room to maneuver in controlling the franc’s exchange rate.

Still, as the saying goes, don’t count your francs before they’re converted.

The Week in EUR/CHF

EUR/CHF

• The EUR/CHF pair began at 0.9280.
• Yesterday morning, it was at the same level before the SNB announced its rate cut, which propelled the exchange rate to 0.9339 EUR/CHF.
• After retracing some gains, the pair returned to its technical resistance levels.

    Among experts, 85% had anticipated the euro would strengthen against the Swiss franc. Yet, the SNB’s unexpected decision amplified the pair’s movements, making the potential outcome of a smaller 0.25% rate cut seem relatively muted.

    The franc remains a strong currency, and the coming days will provide more clarity. Analyst Laurent Bongard from BCV points to 0.9400 EUR/CHF as the key resistance level to reignite the pair’s bullish momentum.

As of this writing, the EUR/CHF exchange rate sits at 0.9364 EUR/CHF.

USD/CHF: A Divergent Path

The USD/CHF pair has followed a different trajectory:

• At Monday’s market open, USD/CHF was trading at 0.8790 USD/CHF.
• Meanwhile, the EUR/USD pair declined over the week, dropping from 1.0580 EUR/USD to 1.0470 EUR/USD.

This trend strengthened the U.S. dollar, while the Swiss franc weakened significantly after the SNB’s surprising announcement.

Key Figures

• The Swiss franc fell 150 pips against the dollar, with the decline accelerating yesterday morning.
• At this pace, USD/CHF could reach 0.9000 before the Federal Reserve’s highly anticipated meeting next week, where a 0.25% rate cut is expected.

     Should the Fed surprise markets with a 0.50% rate cut, as speculated under pressure from Donald Trump, the Swiss franc might regain some strength.

At the time of writing, the USD/CHF pair is holding at 0.8926 USD/CHF. Traders, wary of inflation risks in the U.S. under a Trump administration, are likely to welcome the Fed’s anticipated rate cut.

Twelve Trading Sessions to Go

With only 12 trading sessions left in the year, market sentiment is bullish. This optimism bodes well for the U.S. dollar but could weigh on the Swiss franc and euro exchange rates. 

The Week in Markets and Commodities

Stocks Tied to Donald Trump

    Shares linked to Donald Trump’s circle surged this week. A year-end rally appears likely to confirm this trend.

• Tesla, Elon Musk’s flagship company, rose from $380 last Friday to $418 today.
• Nvidia experienced a slight pullback, losing a few dollars. Despite this, the Nasdaq climbed from 19,700 to 19,900 points.

South Korea’s KOSPI

    South Korea remains mired in political turmoil, with its KOSPI index down 2.7% this week. Over the past 20 sessions, the index has dropped by 9%, largely due to Donald Trump’s policies on electric vehicles, which have significantly impacted the Korean market.

China’s Antitrust Measures

    China launched its 15th stimulus package of the year alongside an antitrust investigation into Nvidia, the world’s largest semiconductor company. This week’s pullback in Nvidia shares can partly be attributed to these developments. It’s worth noting that the U.S. recently imposed restrictions on semiconductor imports to China.

Europe and Anti-Dumping Tariffs

Europe, for its part, imposed a 38% tariff on Chinese vehicles, citing unfair trade practices (dumping).

SMI Performance

    The Swiss Market Index (SMI) opened today at 11,710 points, showing resilience despite a subdued environment.

• Richemont shares rose 3.2% this week, adding to the 12% gain since the start of November.
• Lonza, another standout, recovered most of its November losses, rebounding 5% this week.

    Despite the SNB’s rate cut, the Swiss financial market remained largely unchanged, declining only 100 points in a somber atmosphere.

Looking Ahead

     Will the anticipated year-end rally extend to Swiss and European markets? Only time will tell. Meanwhile, traders should remain vigilant as volatility persists across forex, equities, and commodities.

Oil

Following gains driven by European sanctions on Russia's "phantom fleet," which could hinder its export capacity, crude oil prices briefly dipped due to concerns over overproduction. President-elect Donald Trump has made no secret of his intent to lower hydrocarbon prices by ramping up U.S. production.

Last week, crude oil hovered around $71 per barrel. Now, it ends the week $2.50 higher, at $73.60.

Gas

Natural gas concluded the week at $3.46 per megawatt-hour (MW/h), a marginal increase from its $3.45 level two weeks ago, after some fluctuations during the period.

Gold

Gold rallied to near-record levels midweek before retreating slightly. An ounce of fine gold currently trades above $2,700, while a kilogram bar is valued at CHF 74,950, reflecting a CHF 500 increase from last week.

For smaller gold denominations:

• The Vreneli and Napoleon coins gained CHF 5 each, now priced at CHF 437.

Gold continues to climb despite surging U.S. financial markets and optimistic inflation prospects.

Cryptocurrencies

Crypto traders are eagerly awaiting January 20, poised to deploy their USDT and other fiat-backed digital currencies (cryptos pegged to traditional currencies). For instance, Tether (USDT) mirrors the U.S. dollar’s value, with only minor fluctuations.

    Bitcoin Milestone

    This week, Bitcoin surpassed the $100,000 mark, peaking at $102,164, which translates to CHF 91,260 at current rates. As of now, Bitcoin trades at $100,100 (CHF 91,360).

The "queen of cryptos" is holding just above the $100,000 threshold, also anticipating a potential boost under Donald Trump's presidency.

Crypto in the Global Economy

Cryptocurrencies now represent $3.6 trillion (CHF 3.2 trillion) or 3.27% of global market capitalization, which stands at $110 trillion, according to the Banque de France.

    A looming risk? Critics of cryptocurrencies have long feared a "black hole effect," where cryptos might absorb circulating financial assets and replace traditional currencies. Donald Trump’s policies could accelerate crypto market growth, pushing its share of global market capitalization even higher. 

Weekend Fun in Geneva and Surrounding Areas 

In Geneva

• Halles de Rive Market: On Saturday, indulge in cheese specialties at this lively market open until 2:00 p.m.
• Escalade Festivities:
• Saturday:
• 6:00 p.m. – Musket fire from the north tower of the cathedral, followed by a parade.
• 7:45 p.m. – Lantern procession at Cours Saint-Pierre.
• Sunday:
• 5:00 p.m. – Grand historical parade starting at Parc des Bastions.
  Festivities include weapon demonstrations, music, and concerts throughout the weekend.

In the Region

• Thônes: The Christmas Guinguette features a festive market, DJ sets, and various activities.
• Evian:
• 6:30 p.m. tonight – A pyrotechnic display on the lake as the Petite Flottin docks at the fabulous village on Place Charles de Gaulle.

And Before We Say Goodbye

The editorial team invites you back next week for a fresh analysis of the EUR/CHF pair, with a special focus on USD/CHF movements ahead of the Federal Reserve’s critical decision on interest rate cuts.

See you next week and enjoy your weekend!

X.C.