Switzerland is a major European country with a population of just 8.42 million people. It has a GDP of more than $678 billion. It derives most of its income from exporting industrial goods like chemicals, machinery, and textiles. It is also known as a leading financial hub, that is dominated with high-profile banks like Credit Suisse and UBS. Further, its lax financial laws make it a hub for illicit wealth.
In recent years, the Swiss economy has been slowing and the reason is simple. As mentioned, the country derives most of its income from exports. With the ongoing weakening of the global economy, the country has been caught in the middle of it. A slowing global economy leads to less demand for the product it exports. In fact, recent data has shown that the demand for its products has slowed down, leading to weaker economic growth.
Today, the Swiss National Bank (SNB) will conclude its two-day meeting and release the interest rates decision. The bank is expected to leave interest rates unchanged at the current minus 0.75% level. The bank has not changed interest rates since the December 2014 meeting. In a survey by Reuters, analysts expect the rates to remain at these levels at least through 2021. A number of analysts expect the bank to slash rates to minus 1% to make the franc relatively cheaper than the USD.
If the Swiss National Bank (SNB) will sound more dovish, it will be joining other dovish central banks like the Fed, ECB, the RBA, and the Turkish central bank. Investors expect the Fed to cut rates either at the June meeting or at the September meeting. The ECB has already pushed further the period when it will hike rates to ‘at least through the first half of 2020.’ Last month, the RBA became the first major central bank to slash rates.
Ahead of the SNB decision, the USD/CHF pair has been in consolidation mode as traders wait for guidance from the bank. As of this writing, the pair is trading at the 0.9945 level, which is higher than the previous low of 0.9855. While the pair will move in either direction after the SNB decision, there is a likelihood that it will test the parity level shown below.