SNB to Exert More Pressure on Swiss Franc: FXPro

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More aggressive action to stem the Franc might be needed.

Switzerland may be preparing to step up efforts to weaken its currency and stave off deflation, analysts at FXPro said on Monday, after fresh data showed producer and import prices fell at their fastest pace in six months.

The May Producer and Import Price Index dropped 0.5% month-on-month, defying expectations for a 0.1% increase. The year-on-year decline deepened to 0.7%, marking the 25th consecutive month in negative territory and placing the index at its lowest level since February 2022.

On June 04, the Federal Statistics Office reported a negative inflation print for May (-0.1% y/y), confirming that the central bank's battle against inflation is over, and expanding the scope for a cut in interest rates into negative territory.

"Given the SNB's target of inflation between 0% and 2%, the negative inflation rate is likely to prompt the SNB to consider further monetary easing measures to stimulate the economy and bring inflation back within its desired range," says Shane Strowmatt at LGT Bank.

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Analysts increasingly identify the Swiss franc’s strength, amplified by its safe-haven appeal, as a key driver behind the ongoing deflationary pressure.

While the Swiss National Bank (SNB) has eased monetary policy by 150 basis points since early 2024, the European Central Bank has cut more aggressively, trimming rates by 210 basis points.

Above: Switzerland entering a new deflationary phase?

FXPro says this leaves Swiss policy comparatively tighter, encouraging further franc appreciation.

"The SNB now faces a triple challenge: entrenched deflation, a relatively tight policy stance compared to the ECB, and a currency that is pushing up against historical ceilings," FXPro said.

Recent moves in the USDCHF and EURCHF highlight the strain: the dollar-franc rate touched 0.8050, levels not sustained since Switzerland's 2015 currency shock, while EURCHF is hovering just above its historical lows around 0.9250.

The SNB has previously acted to stem sharp franc gains through interventions or policy guidance. But FXPro suggests that verbal signals may no longer suffice:

"Declining inflation and the franc’s wanderings near its historical ceiling point to the need for more fundamental measures."

Above: Franc strength, as per the GBP/CHF (top) and USD/CHF, shown at monthly intervals.

At its upcoming quarterly meeting on Thursday, the SNB is widely expected to cut its policy rate by 25 basis points, with markets pricing in at least one more cut before year-end.

However, FXPro does not rule out more aggressive action, including direct intervention in currency markets or even a reintroduction of negative interest rates to discourage capital inflows.

Such a shift could mark the start of a sustained period of franc weakness. "As in previous similar episodes,"” the note concludes, "a change in the SNB’s policy could lay the foundation for a months-long trend of franc weakness and cause the EURCHF and USDCHF to rise by 10–20% in the next 2–4 quarters."

The SNB’s decision this week is now closely watched by markets, which are weighing whether policymakers are prepared to move beyond words to preserve price stability in one of the world’s strongest currencies.