The timing for the Swiss National Bank (SNB) to cut interest rates has come again. The market currently believes that there is a 49% chance that the SNB will choose to cut rates by 50 basis points on Thursday, completely digesting the possibility of a third consecutive 25 basis point cut to 1.0%. Given the various challenges facing the global economic environment such as inflation pressures and geopolitical uncertainties, this decision is made at a crucial moment when the world is facing these challenges.

Since June 2024, the Swiss National Bank's policy interest rate is currently set at 1.25%. As one of the most stable economies in the world, Switzerland's economy has been striving to cope with moderate inflation and a strong Swiss franc, both of which have an impact on the export-driven economic sector. The main responsibility of the Swiss National Bank is to promote economic expansion while maintaining price stability.

Inflation is starting to ease.

The Swiss National Bank's goal is to keep inflation within a predetermined range. Recent data shows that inflation pressure is starting to ease, opening the door for rate cuts. It is possible to stimulate borrowing and investment by lowering interest rates, thereby promoting economic growth. This is especially important considering Switzerland is currently in a phase of recovery post the COVID-19 pandemic.

The current global economic situation, including the policies of other major central banks such as the Federal Reserve and the European Central Bank, will also influence the Swiss National Bank's decisions.

Lower interest rates may lead to the devaluation of the Swiss franc, making Swiss exports more competitive in the international market. Reducing interest rates will lower the borrowing costs for individuals and businesses, which could result in increased spending and investment.

In August, the Swiss Consumer Price Index (CPI) rose by 1.1% compared to the same period last year, lower than the expected increase of 1.2%. The Swiss franc to Euro exchange rate also rose to its highest level since 2015 in August.

Swiss franc shorts hope for a 50 basis point rate cut.

Swiss franc shorts hope the Swiss National Bank will follow the Fed this week and cut rates by 50 basis points. If so, EUR/CHF may rise to 0.96.

The market currently believes that there is a 49% chance that the Swiss National Bank will choose to cut rates by 50 basis points on Thursday, completely absorbing the possibility of a third consecutive cut of 25 basis points to 1.0%.

Outgoing Swiss National Bank President Thomas Jordan stated last month that the strength of the Swiss franc is making life tougher for Swiss industry. A 50 basis point rate cut is a way the Swiss National Bank may try to make things easier as it is expected to weaken the franc.

The forex position data from the US Commodity Futures Trading Commission (CFTC) shows that Swiss franc net shorts decreased for the fourth consecutive week, dropping to 17,108 contracts as of the week ending September 17, the lowest since February.

Technically looking at USD/CHF.

The Swiss franc has been trapped in a sideways channel last month, with resistance at the upper boundary of 0.8540 and support at 0.8400. In case of a larger decline, USD/CHF may need time to test the previous low of 0.8400 and the nine-month low of 0.8370.

On the other hand, breaking through narrow range fluctuations may increase the optimistic sentiment for upward recovery, touching the short-term trendlines at 0.8580 and the 50-day Simple Moving Average (SMA) at 0.8600.

As long as the market stays below the 200-day moving average, the medium-term outlook remains bearish.

At 18:30 Beijing time, the USD/CHF is trading at 0.8480/82, up 0.07%.