If there's any consolation for the Swiss franc, it's that while analysts were expecting a 25 bps rate cut, it was less so with market prices. The rates market showed traders expecting ~58% probability of a 50 bps rate cut and the rest pegged to a 25 bps move. That is helping to take a little away but the franc is still lower than it was before the decision.
EUR/CHF daily chart
Focusing on today's SNB and ECB policy decisions, EUR/CHF is one to watch and the pair is now up 0.7% to 0.9336 on the day. It comes after the pair tested the December 2023 and August lows last month, before holding around just below 0.9300 since then.
Additionally, USD/CHF is also seen up 0.5% to 0.8885 on the day from around 0.8825 before the decision.
Although the SNB's decision was “surprising”, however, there are a couple of reasons that could make traders think twice about prolonged weakness in the currency.
For one, as mentioned the change in direction is forwarded by the SNB itself. They do not mention “further rate cuts” and only stated that they will change policy accordingly depending on the situation going forward. If anything, I'd take it to mean they could stop in Q1 next year at least.
Of course, there is still a good chance that the key policy rate will be cut again to 0.25%. But we'll see. This just gives some flexibility to the decision, which is still more than three months away.
In addition, there is the fact that traders priced in a reasonable probability of a 50 bps move. Therefore, the “surprise” is not so influential considering the market prices already.
And in the bigger picture, global growth struggles especially in Europe and China along with Trump's threat of tariffs may support the franc. That despite the fact that the SNB wants to prevent the currency from strengthening too much. But it may be inevitable considering wider market and economic developments.
The franc may still struggle more against the dollar, leaving USD/CHF in a good position to gain more. But in the case of EUR/CHF, this small spike higher may not continue as long as the euro area economy itself struggles for any traction next year. And from the chart above, there is still a lot of unfair pressure at this time.
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