The Swiss Franc (CHF) underperformed following the Swiss National Bank's (SNB) decision to keep its policy rate at 0.00% for the fifth consecutive meeting, according to Brown Brothers Harriman (BBH) [1]. This move was in line with market expectations, but the SNB notably resisted market pricing that anticipated 50 to 75 basis points of rate hikes over the next twelve months [1].
The SNB emphasized that its current monetary policy stance is 'appropriate' to maintain inflation within its price stability mandate of less than 2% per annum [1]. Although the SNB slightly raised its inflation projection due to higher oil prices, the forecast remains below 1% throughout the entire projection period [1].
BBH highlights that the widening yield gap between Switzerland and both the US and Eurozone is expected to sustain upward pressure on the USD/CHF and EUR/CHF currency pairs [1]. The SNB's reluctance to tighten policy further, despite market expectations, is seen as a key factor contributing to the Swiss Franc's recent underperformance in the currency markets [1].
CONCLUSION
The SNB's decision to hold rates steady and push back against market expectations for hikes has kept the Swiss Franc under pressure. With inflation forecasts remaining subdued and the yield gap widening, analysts expect continued upside for USD/CHF and EUR/CHF pairs.