Why a strong currency is causing problems for Switzerland

The policies of US President Donald Trump have rocked global stocks in recent weeks, prompting investors to search for safety pockets in financial markets.

He was one of the beneficiaries of market fluctuations Swiss francIt is widely seen as a safe asset at times of total or geopolitical economic uncertainty. The Swiss currency has been 10 % estimate against the US dollar since the beginning of the year – but within the Swiss border, the increasing demand for the franc raises the challenges of policy makers.

The last time of the Swiss franc traded 0.2 % against Greenback, with one dollar purchased about 0.82 Swiss francs. The Switzerland, which was trading early on Wednesday, rose after ADP data showed recruitment Summ to his lowest level for two years In the private sector in America last month.

The strong franc puts the contraction pressure on Switzerland. With the currency estimate, imports – which play an important role in the country’s economy – become cheaper.

For some countries, this effect may be a welcome of sticky inflation. But while many markets have evolved, such as US and UKIt still reduces inflation to its 2 % targets, and Switzerland has a opposite problem: prices drop too much.

Swiss inflation became negative in May, as the country’s consumer price index decreased by 0.1 % on an annual basis. The price of imported goods decreased significantly, and decreased by 2.4 % on an annual basis after staying flat in the previous month.

Charlotte de Montpellier, an economist in France and Switzerland in Eng, noticed the role played by the currency rally in the form of inflation in the country.

She said in a note on Tuesday: “The recent decline is largely driven by external factors.” “The strong Swiss franc has greatly reduced the cost of imported goods … given that imports make up 23 % of the consumer price index, this has a noticeable effect on general inflation in Switzerland.”

Mayo data has put the first Switzerland’s return to shrinkage since the Covid-19s. The Swiss National Bank can push for the use of two main policies that were previously implemented to address what De Monpelier described as a “continuous headache” of the Central Bank.

SNB has ended an extension of seven years of negative interest rates in 2022-a policy that is unimportant with savers and lenders, because it removes returns on savings deposits and Compresses of bank margins and profitability.

At its last meeting in March, the central bank reduced its main price by 25 basis points to 0.25 %.

De Montpellier said that in the wake of inflation data for this week, it is expected to “seek to combat the estimation of the Swiss franc with weapons at its disposal.”

G from SNB expects the main interest rate to be reduced by 25 basis points at its next meeting later this month – De Montpellier argued that more discounts will likely follow.

“Based on the current data, returning to negative interest rates before the end of the year seem increasingly possible,” she said. “Our issue includes a second reduction in September in September, which reaches a policy rate to -0.25 %. While SNB prefers to avoid deeper cuts, a 50bp reduction cannot be excluded in June.”

While Engy expects Swiss policy makers to stop reducing -0.25 % rates, De Montpellier said that the strengthening of the Swiss franc “could be imposed [the SNB’s] Hand, “Leave it with a little option but to take prices to negative lands.

Lily Fang, Professor of Finance at the College of Business Administration, told CNBC that the current conditions are likely to return Switzerland to a negative price environment – a step by SNB Martin Sliegel’s chair. Diamets tense on the table.

“The Swiss authorities are clearly concerned, because … it is a small open economy based on international trade, and the United States in particular is its most important commercial partner behind the European Union bloc,” Fang said in a phone call.

“Switzerland has already advanced and lowered its prices before the European Union. I think it is very likely to go to zero and even passive.”

Once again in 2020, the US Treasury, under the first Trump administration, The name Switzerland is the currency maneuverAccusing him of intentionally reducing the Swiss franc against Greenback. SNB denied these allegations at that time.

Trump A complete list of the so -called mutual definitions He said, “Currency and commercial barriers,” was taken into account to calculate the fees that were an individual country imposed on the United States. The administration said it calculated Switzerland – which It canceled all industrial tariffs last year – 61 % charged tariffs for the United States, and therefore they will slap a new tariff of 31 % on Swiss goods.

While ing’s de Montpellier has acknowledged that any FX intervention from SNB risked “the anger of the American administration”, it said it is likely that the central bank will interfere in the markets in the coming months.

Alex King, a former trader and founder of personal financing platforms, agreed that any direct purchase of foreign currencies by SNB was “unlikely to sit well with the American administration.”

“When Switzerland was classified as a currency mane in 2020, the tariff threat was not a major factor, but now it has a dilemma on its hands,” CNBC told CNBC in an email. “If it is possible to interfere directly again in the foreign currency markets, he may have the highest American definitions, and the negative impact of this may be worse than short -term inflationary pressures.”

Last month, Sildlel from SNB said that Swiss officials had constructive talks with the United States on the Central Bank’s interventions, in the comments. Bloomberg was martyred by.

“We were never affected by the exchange rate to obtain an advantage,” according to what was reported by one of the audience in the Swiss city of Lucen.

“I am not sure that they will go immediately and use the currency intervention and interfere in the market, because the United States tends to be … the ranks of the countries,” Fang -Inid added. [so] I think they will use this as the last resort tool. “