Swiss Franc Struggles, Dollar Steadies as SNB Keeps Negative Rate Option on Table

USD/CHF traded near 0.8013 on Friday, steadying intraday after the pair fell to 0.7949 in the previous session, its lowest level since June 17, though the dollar later trimmed its intraday losses.

**Central Bank Intervention and Negative Rate Option Curb Franc Upside**

The Swiss National Bank (SNB) clearly signaled a stronger willingness to intervene in the foreign exchange market in its latest policy stance, responding to a sharp franc appreciation driven by safe-haven inflows. Analysts noted the central bank may have even begun actively selling francs. While large-scale intervention would expand its already bloated balance sheet, it is viewed as a more direct and effective tool than cutting rates into negative territory. However, SNB officials still lean toward keeping "negative rates" as a final reserved option. The country's inflation rate is currently extremely low, at around 0.3% annually, near the lower end of the central bank's 0%-2% target range. Cheap import costs stemming from the strong domestic currency could further depress prices, raising deflation risks, but inflation levels remain in line with the SNB's expectations, and with resilient economic growth, there is no immediate need to deploy extreme rate tools.

**Market Pricing and Analyst Views Diverge**

Market expectations for SNB easing have notably intensified. Based on implied levels in swap markets, traders price in roughly an 80% probability that the central bank will cut rates to zero at its next meeting in June. Francesco Pesole, FX strategist at ING, believes that if the SNB is dissatisfied with the strong franc and intervention is constrained, a rate cut would be the only option. Stefan Gerlach, chief economist at Swiss bank EFG International, said negative rates are "quite likely" and added that currency intervention may also be necessary. Meanwhile, Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America, advised the SNB to intervene "against the wind," arguing this approach is more likely than negative rates.

**Policy Alignment with the Fed and Outlook Uncertainty**

In the current global macro context, the SNB's decision maintains a degree of alignment with the Federal Reserve, which also held rates unchanged this week. The SNB slightly raised its inflation forecast for this year, revising it from 0.3% to 0.5%, and projects economic growth of around 1% this year. Despite this, the central bank's statement still emphasized that the economic outlook over the coming months remains fraught with uncertainty, with growth likely to stay sluggish.