Switzerland's inflation rate dropped to negative territory for the first time in four years, exacerbating the bet the country will return to zero interest rates to avoid a relaxed downturn and limit soaring currencies.
Data shows that annual inflation rate was 0.1% in May, with air transport prices and accommodation prices for people who delayed the consumer price index. Prices rose 0.1% in the month.
In recent months, the Swiss National Bank will lower interest rates to zero or below months in response to the value of the Swiss franc, a safe haven investor bought from a shelter from U.S. President Donald Trump.
The franc is one of the best performing major currencies this year, with nearly 11% against the dollar and peers over their peers like the euro and pound. Since the shocking appreciation of the 2015 Franc, green has been approaching SFR0.80 in recent weeks.
The stronger francs delay Swiss inflation by reducing import costs.
Fidelity fund manager Mike Riddell said signs of deflation “will make SNB allergic to the appreciation of Swiss francs”, which could exacerbate the price drop.
He predicts that "any further upward pressure" could trigger FX market intervention by central banks that weaken the currency. SNB targets inflation rates between zero and 2%.
This would have the potential to stir up outrage from the White House, which added Switzerland to the “currency manipulator” list in the final weeks of Trump’s first term. Later, it was removed from the Joe Biden administration's list.
"It's a subtle situation," said Daniel Kalt, Switzerland's chief investment officer for Global Wealth Management Switzerland. "You don't want to be seen as a currency manipulator when you're doing these trade negotiations with the United States."
Carter said the Franc's path will be crucial, adding that from recent strength to consumer prices, we haven't even seen the entire pass yet.
Switzerland has historically tried to limit its currency, which is seen as a safe haven for financial markets due to the country's relative political and economic stability.
SNB lowered interest rates than 2008, then returned to active territory in 2022 and established a large international portfolio of assets through its monetary interventions.
Now, before the December SNB meeting, the market will be priced at a two-point reduction rate, which will reduce the policy rate to 0.25%. One of them is expected to attend the meeting later this month.
The Swiss government's bond yields fell by 0.24% in two years, the lowest in three years. Results trading for a maximum of six years maturity was below zero on Tuesday.