Traders are betting that the Swiss National Bank will cut interest rates as soon as next month, even though near-term policy easing across the developed world is questionable.
Chances of a 25-basis-point cut at the central bank's next quarterly meeting have doubled since Friday to more than 50%. The final boost to the SNB's easing bets came from surprisingly weak Swiss inflation data for January, causing the Swiss franc to fall to a two-month low against the euro and the lowest level against the dollar since November.
In December, the SNB signaled an end to its policy tightening campaign, indicating that consumer prices are now falling below the 2% ceiling.
The SNB's rate cut in March would come ahead of other G10 central banks, which have warned markets they need confirmation that price pressures have been resolved before they begin their easing cycles.
UBS lowered its 2024 inflation estimate to 1.4%, down half a point from the SNB's latest projection, referring to weaker-than-expected second-round effects. However, it maintained the SNB's baseline scenario in which it would not start cutting rates until June.
The rising likelihood of an early rate cut by the SNB motivated hedge funds to sell the franc last week, while growing signs of weakening inflation also spurred speculation to sell the franc against a basket of major global currencies by the SNB, especially in the USDCHF currency pair.
From a technical point of view, there is a divergence formed on the USDCHF pair, which indicates a probable upward reversal. The target is the technical level of 0.9360.
The overall recommendation is to buy USDCHF.
Profit should be taken at the price level of 0.9360. A Stop-loss could be set at the level of 0.8460.
This content is for informational purposes only and is not intended to be investing advice.
