April witnessed a lower-than-expected Swiss inflation rate, suggesting a potential June rate cut by the SNB. Markets are considering a return to negative interest rates due to the strong franc and global uncertainties affecting growth and price stability.

Despite Swiss inflation’s lower figures for April, EUR/CHF declined. Headline inflation was 0.0% y/y against a consensus of 0.2%, significantly under the SNB’s Q2 expectation of 0.3% y/y. Core inflation also fell from 0.9% to 0.6% y/y. This drop is attributed to declining energy prices and the strengthening CHF, which decreases imported inflation.

Price Pressures In Switzerland

Price pressures in Switzerland remain subdued, while trade war uncertainties and the strong CHF weigh on the manufacturing sector. Markets have priced over 30bp in cuts for the upcoming SNB meeting, with 45bp projected by 2025, indicating a potential return to a negative interest rate policy.

There is speculation about a policy rate cut to 0% in June. However, the recent data increases the risk of NIRP returning. The SNB might consider foreign exchange interventions before delving into negative rates.

This drop in Swiss inflation, both at the headline and core levels, highlights how the domestic economy remains under little pressure to raise prices, particularly when external factors—such as dropping energy prices—continue to play a deflationary role. With a year-on-year figure of zero for April, far below the central bank’s second-quarter projection, the space for loosening monetary policy is widening.

The Swiss franc has continued to strengthen, broadening the gap between Swiss and European inflation dynamics. That appreciation puts additional pressure on Swiss exporters, and by extension, the entire manufacturing base, which remains sensitive to currency volatility. It’s clear that as the franc rises, imported goods become cheaper, dragging inflation even lower. That puts the policy bias firmly toward easing, especially in light of the global industrial slowdown and persistent geopolitical tensions, which both compound downside risks to growth.

Risk Management And Market Positioning

We see the forward market already adjusting. With more than 30 basis points in cuts priced into the monetary futures curve ahead of the Swiss National Bank’s June meeting, participants appear to be erring on the side of caution. The projection of 45 basis points trimmed by mid-2025 reflects not just domestic weakness, but also pessimism about global recovery momentum.

In the face of these developments, the SNB may explore pre-emptive steps before reaching again for negative rates. Forex interventions stand out as a possible tool. It’s not the first time the bank has defended its currency position this way, and with the current appreciation cycles, the likelihood looks high. A stronger franc, while beneficial for inflation control, creates hurdles for the export-led sectors, and the central bank often responds when that balance shifts too far.

For those involved in rate-sensitive instruments, particularly in the Swiss derivatives space, it pays to monitor both headline inflation updates and the language surrounding SNB communications. It would be prudent to stress test rate exposure under deeper negative rate assumptions, especially in the front end of the curve. Given how the April data deviated from the central bank’s already-muted expectations, the risk scenario no longer feels stretched.

Jordan’s team has historically acted decisively when inflation undershoots the target range. The moves in the FX market suggest investors are interpreting the data in just that way: as a green light for early easing. The way that EUR/CHF continued to weaken, even after a soft inflation print, reflects ongoing strength in the franc that hasn’t been softened by dovish expectations alone. That tells us there are deeper structural forces anchoring expectations of CHF firmness.

In positioning terms, we shouldn’t underestimate the messaging. If the SNB signals discomfort about currency strength, or says little in the face of data softening, futures volatility could rise quickly. Option skews in rates may already be beginning to price in tail risks. Thus, incorporating premium protection or volatility-targeting strategies in the SNB horizon may offer better convexity.

Lastly, positioning along the front end will depend largely on whether markets perceive the SNB as leaning more on FX tools or policy rates. The former may delay rate cuts, but not avert them. Either path points to a flatter curve, and so the recent repricing dynamics favour carry-neutral positioning that benefits from downward moves rather than maturity extension.

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