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 cut of 25 basis points to 1.0%. This decision is made at a critical moment when the global economy is facing many challenges, including inflation pressures and geopolitical uncertainties.

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 has been coping with mild inflation and a strong Swiss franc, both of which have affected the export-driven sectors of the economy. The main responsibility of the SNB is to promote economic expansion while maintaining price stability.

Inflation is beginning to ease.

The Swiss National Bank's goal is to keep inflation within a predetermined range. Recent data indicates that inflation pressures are starting to ease, opening the door for a rate cut. It may stimulate borrowing and investment by lowering interest rates, thus promoting economic growth. This is especially crucial as Switzerland is currently in the post-COVID-19 recovery phase.

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 rates could lead to a devaluation of the Swiss franc, making Swiss exports more competitive in international markets. Lowering rates will reduce the borrowing costs for individuals and businesses, which could result in increased spending and investment.

In August, the Swiss Consumer Price Index (CPI) rose 1.1% compared to the same period last year, slightly below the expected increase of 1.2%. The Swiss franc against the euro also rose to its highest level since 2015 in August.

Swiss franc bears hope for a 50 basis points rate cut.

Swiss franc bears hope that the Swiss National Bank will follow the Fed's approach this week and cut interest rates by 50 basis points. If so, the EUR/CHF could 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, fully digesting the possibility of a third consecutive 25 basis points cut to 1.0%.

Thomas Jordan, the outgoing President of the Swiss National Bank, stated last month that the strengthening Swiss franc has made life more difficult for Swiss industries. A 50 basis points rate cut is one way the Swiss National Bank may try to make things easier, as it is expected to weaken the franc.

According to forex position data from the U.S. Commodity Futures Trading Commission (CFTC), net Swiss franc short positions continued to decline for the fourth consecutive week ending September 17, falling to 17,108 contracts, the lowest since February.

Technically speaking, looking at the USD/CHF pair.

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, the 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 volatility may increase the optimistic sentiment of upward recovery, reaching the short-term trendlines at 0.8580 and the 50-day simple moving average (SMA) at 0.8600.

As long as the market remains below the 200-day moving average, the mid-term to short-term outlook remains bearish.

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