Swiss Inflation – The Envy of Developed Markets
Swiss inflation remains comfortably beneath the 2% target, remaining at 1.4% for a second month in a row as other countries like the US and the EU are yet to achieve the feat. Just yesterday, the UK managed to hit the Bank of England’s 2% target but unlike Switzerland, UK inflation is expected to remain above 2% for some time thereafter.
Swiss Inflation (Headline and Core Measures of CPI)
Source: Refinitiv, prepared by Richard Snow
Swiss GDP and Wage Growth Gave SNB Hawks a Reason to Hold
Early signs of an economic recovery in Switzerland have been building, suggesting that rates are not too restrictive to hamper growth. In addition, wages in Switzerland had shown resilience, holding at 1.8% for three quarters in a row, only dropping marginally in Q4 2023 to 1.7%. These developments provided some uncertainty around the decision with many of the view the Bank might have held rates steady.
GDP Showing Green Shoots and Wage Pressures Hold Firm
Source: Refinitiv, prepared by Richard Snow
USD/CHF Immediate Market Reaction and Outlook
With many market participants holding out for an unchanged interest rate announcement today, its unsurprising to see a sharp repricing in the franc (weakness) as USD/CHF climbed 67 pips in the aftermath.
USD/CHF 5-Minute Chart
Source: TradingView, prepared by Richard Snow
The weaker franc presents a potential reversal formation unfolding at the moment. Should price action close for the day around current levels, the three-day candle formation could be likened to that of a morning star – a typically bullish reversal pattern. The one concern here is the longevity of bullish drivers around the dollar. Hawkish revision to the Fed’s inflation forecast sent the greenback sharply higher but with inflation appearing on track for 2%, markets may soon price in a rate cut as early as Q3. US PCE data next week will help provide direction for the dollar and either confirm or invalidate CPI improvements.
USD/CHF Daily Chart
Source: TradingView, prepared by Richard Snow
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