If there's any consolation to the Swiss franc, it is that while analysts were expecting a 25 bps rate cut, it wasn't so much so the case with market pricing. The rates market showed that traders were anticipating a ~58% probability of a 50 bps rate cut with the remainder tied to a 25 bps move. That is helping to take the sting off a little but the franc is still lower than it was before the decision.
With the SNB and ECB policy decisions in focus today, 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 was testing the December 2023 and August lows last month, before sticking thereabouts just under 0.9300 since.
Besides that, USD/CHF is also seen up by 0.5% to 0.8885 on the day from around 0.8825 before the decision.
While the SNB decision was "surprising" though, there are a couple of factors that might offer traders to think twice about prolonged weakness in the currency.
For one, as mentioned is the change in forward guidance by the SNB itself. They're not alluding to "further rate cuts" anymore and just mentioned that they will adjust policy accordingly depending on the future situation. If anything, I'd take it as meaning that they could potentially pause in Q1 next year at least.
Of course, there is still a good chance of them cutting the key policy rate again to 0.25%. But we'll see. This just offers up some flexibility to the decision, which is still more than three months away.
Other than that, there is the fact that traders also priced in a decent probability of a 50 bps move. As such, the "surprise" isn't as impactful considering the market pricing already.
And in the bigger picture, global growth struggles particularly in Europe and China alongside the threat of Trump tariffs might offer some support to the franc. That despite the SNB wanting to prevent the currency from strengthening too much. But it might just be inevitable considering broader market and economic developments.
The franc might still struggle more against the dollar, leaving USD/CHF in a good spot to gain further. But in the case of EUR/CHF, this little spike higher may not lead to much as long as the euro area economy itself continues to struggle for any traction next year. And from the chart above, there's still a lot of downside pressure in place for the time being.
