Why the strong currency causes problems for Switzerland

In recent weeks, US President Donald Trump’s trade policy has shocked global shares, making investors look for security pockets in financial markets.

One of the beneficiaries of market volatility was Swiss francIt is widely seen as a safe shelter during macroeconomic or geopolitical uncertainty. The Swiss currency estimated 10% against the US dollar since the beginning of the year – but within the borders of Switzerland, the growth of demand for Franco has caused problems for politicians.

The Swiss franc was last seen 0.2% higher against the green turn, with $ 1 bought about $ 0.82 Swiss francs. Switzerland’s currency, which traded the apartment earlier on Wednesday, rallied after ADP data was shown to hire delayed to a two -year minimum In the private sector of America last month.

Strong Franc has deflated pressure on Switzerland. As the currency appreciates, imports – playing a significant role in the country’s economy – become cheaper.

In some countries, this effect can be welcome from sticky inflation. But while many developed markets such as US and UK.

Swiss inflation became negative in May, and the country’s consumer price index decreased by 0.1% compared to last year. The cost of imported goods decreased significantly, decreasing by 2.4% annually after being in the previous month.

Charlotte de Montpellier, Senior Economist of France and Switzerland in Ing, noted what role the currency acung played in the country’s inflation.

“The last decline is largely due to external factors,” she said in a note on Tuesday. “Strong Swiss franc significantly reduced the cost of imported goods … Given that import is 23% of the IPC basket, it has a noticeable effect on overall inflation in Switzerland.”

Data from T-shirts noted the first return of Switzerland to deflation after the Covid-19 pandemic. This may push the Swiss National Bank to use two key politicians who had previously been realized to address that de Montpelli called a “constant headache” for the Central Bank.

In 2022, SNB ended with a seven-year negative interest rate with savings and lenders as they eliminate the profitability of savings and Squeeze the margins and the profitability of the banks.

At its latest meeting in March, the Central Bank reduced the key rate by 25 basic points to 0.25%.

In the footsteps of this week’s inflation data, SNB is expected, “seeks to fight the gratitude of the Swiss Franco with weapons at the disposal,” said de Mantpeler.

Ing expects that SNB will reduce its main interest rate by 25 basic points at the next meeting at the end of this month – and de Montapeler claimed that there would probably be the following cuts.

“Based on the current data, the return to the negative interest rates by the end of the year looks increasingly likely,” she said. “Our basic case includes a second reduction in 25bp in September, which will bet policy up to -0.25%. While SNB prefers to avoid deeper cuts, a 50bp decrease in June cannot be ruled out.”

While Ing expects the Swiss politicians to stop cutting the indicators by -0.25%, de Montapeler said that further strengthening the Swiss Frank “could force the hand (The SNB),” leaving it with a small choice, but take over a larger area in the negative territory.

Lily Fang, Professor Finance in Business School Insad, reported CNBC that current conditions are probably emphasized what remains on the table.

“The Swiss authorities are clearly concerned because … this is a small, open economy that relies on international trade, and the US, in particular, is their only most important trading partner outside the EU bloc,” Fang said in a phone call.

“Switzerland has already gone ahead and reduced tariffs ahead. I think it is very likely to go to zero and even negative.”

Back in 2020, the US Treasury, under Trump’s first administration, indicated by Switzerland as a currency manipulatorblaming him of the intentional devaluation of the Swiss Franco against the green appeal. SNB denied the charges at the time.

Trap Full list of so -called mutual tariffs It is mentioned that “currency manipulations and trade barriers” were taken into account by collections that individual countries impose on the United States. The administration stated that he estimated that Switzerland was what Last year canceled all industrial tariffs .

While Ing de Montapellier admitted that any possible FX intervention from SNB risked the “provocative US administration”, she claimed that the Central Bank was likely to intervene the markets in the coming months.

Alex King, a former FX trader and the founder of the “Personal Financial Platforms” cash, agreed that any SNB foreign currency purchase “is unlikely to sit with the US administration”.

“When a currency manipulator was indicated in Switzerland in 2020, the threat of tariffs was not such a major factor, but now it has a dilemma,” he said in an email CNBC. “If it were to intervene directly in the FX markets, it can get into higher tariffs on the US, and the negative impact could be worse than short -term inflation.”

Last month Schlegel SNB said quotes Bloomberg.

“We have never influenced the course to gain an advantage,” he said he said to the audience in the Swiss city of Lucerne.

“I am not sure that they will immediately go and use currency intervention, market intervention because the United States is usually … Manipulators marking countries,” the inspiration added. “I don’t think they really want them to be denoted again as a manipulator, (yes) I think they will use it probably as a tool as a last resort.”