Swiss franc edges higher as inflation holds at 1.4%

The Swiss franc is in positive territory on Tuesday. USD/CHF is trading at 0.8935 in the European session, down 0.24% on the day. The Swissie has posted its strongest rally of the year, with gains of 2% since May 29th and is trading at its highest level since March 21st.

Swiss inflation unchanged

Switzerland’s inflation rate remained unchanged in May and the Swiss franc has shown limited movement on Tuesday. Inflation remained at 0.3% m/m, just below the market estimate of 0.4%. On an annualized basis, inflation was steady at 1.4%. The core rate, which excludes food and energy, was also unchanged in May, with a gain of 1.2%.

The May inflation reading of 1.4% matches the 2024 high and has weakened the case for a rate cut when the Swiss National Bank meets on June 20th. The SNB took the lead in March and was the first major central bank to lower interest rates.

The Swiss franc has declined around 7% against the US dollar this year SNB Chair Jordan made headlines last week when he said that the weak franc was feeding inflation and that the central bank could counteract this by intervening in the currency markets. This has triggered an impressive rally by the Swiss franc.

In the US, the ISM Manufacturing PMI slowed for a second straight month, dropping in May from 49.2 to 48.7. As well, construction activity slowed in May. These releases point to a slowdown in the US economy and have raised expectations of a rate cut. The markets have priced in a 62% probability of a September rate cut, compared to 46% just one week ago.

USD/CHF Technical

• USD/CHF is testing support at 0.8926. Below, there is support at 0.8893
• 0.8983 and 0.9016 are the next resistance lines