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Swiss inflation has fallen into negative territory for the first time in four years, promoting a bet that the country will return to interest rates below zero to stop a sluggish deflation and curb a rising currency.
Data released Tuesday showed that annual inflation rate was 0.1% in May, with air transport and accommodation prices among people dragged by the consumer price index. Prices rose 0.1% per month.
Traders have increased their bets in recent months to cut interest rates below zero to slow inflation and address the surge in value of the Swiss franc, the currency of the shelter that investors bought as a shelter from the trade war by US President Donald Trump.
Franc is one of the most performant major currencies this year, up nearly 11% against dollars and overtaking buddies such as the euro and pound. This has brought the greenback closer to SFR 0.80 in recent weeks since the shocking rating at Franc in 2015.
Stronger francs reduce Swiss inflation by reducing import costs.
Mike Riddell, Fund Manager at Fidelity, said the signs of deflation would “have allergic to SNB to the Swiss franc’s thanks,” and said prices could deteriorate.
He predicted that “more upward currencies pressure” would likely lead to central banks intervention in the Forex market as it weakens the currency. SNB targets inflation rates from zero to 2%.
It risked causing the White House rage, which added Switzerland to the list of “currency manipulators” in the final week of Trump’s first presidency. It was later removed from the list under the Joe Biden administration.
“It’s a sensitive situation where they are,” said Daniel Kalt, Switzerland’s chief investment officer at UBS Global Wealth Management. “While you are undergoing these trade consultations with the US, you don’t want to be recognized as a currency manipulator.”
Fran’s path is extremely important, the Cult said, “I’ve never even seen the whole pass-through” from recent strength to consumer prices.
Switzerland has historically tried to curb the currency. It is considered a shelter for financial markets due to the relative political and economic stability of the country.
SNB held interest rates below zero for eight years before returning to Plus Territory in 2022, building a vast portfolio of international assets through currency interventions.
The market is currently priced at two quarters of rate reductions before the December SNB meeting, with a policy rate of 0.25%. One of them is scheduled to compete in the meeting later this month.
The two-year Swiss government bond yield fell to minus 0.24% on Tuesday, reaching its lowest in three years. It will earn up to six years of revenue on Tuesday with maturity below zero.
