Swiss franc hits new 2025 high as inflation continues to fall

The Swiss franc has rallied for a third straight trading day.  In the North American session, USD/CHF is trading at 0.8884, down 0.12% on the day. The Swiss franc has jumped 1.6% this week and earlier strengthened to 0.8856, its best level this year.

Swiss inflation has been falling and the trend continued in February. Headline CPI rose 0.3% y/y, down from 0.4% in January and above the market estimate of 0.2%.  This was the lowest level since April 2021.  The decrease was driven  by lower prices for food and energy.  Core inflation, which removes volatile items such as food and energy, remained steady at 0.9% y/y.

The inflation report confirms the trend of falling inflation and has likely cemented a rate cut when the Swiss National Bank meets on March 20.  The markets have priced in a 25 basis point rate cut at around 90%.  The SNB chopped rates in December by 50 basis points, bringing the cash rate to 0.5%.

Governor Martin Schlegel has said that the central bank will lower rates into negative territory if needed.  The SNB maintained rates in negative territory until 2022, when a coordinated move by the major central banks boosted Swiss rates as high as 1.75%.

In addition to falling inflation, there are other factors supp0rting the case for a rate cut at this month's meeting.  The Swiss economy slowed to 0.2% q/q in the fourth quarter of 2024, down from 0.4% in Q3, its weakest expansion since Q2 2023.  As well, a rate cut could cool the rising Swiss franc. The SNB doesn't want the Swiss franc to continue rising as that hurts Swiss exports.

The US releases ISM Services PMI later today.  The services sector continues to expand and is carrrying the US economy on its back, as manufacturing has been in a recession.  The market estimate f0r the services PMI stands at 52.6 for February, down slightly from 52.8 in January.

• There is resistance at 0.8916 and 0.8960
• 0.8851 and 0.8807 are providing support