SNB rates unchanged, lowers inflation forecasts

As widely expected, the Swiss National Bank kept their key overnight lending rate unchanged at 0.25 percent. However, the trailing comments by policy makers lead the Swiss Franc to weaken against almost all major currencies as the SNB lowered their inflation forecast for 2010 to 0.7 percent from 0.9 percent, while also decreasing their 2011 inflation forecasts to 0.3 percent from previous expectations of 1.0 percent. At the same time, the central bank said that uncertainty about the global outlook remains high, and went on to add that the economy will show a “marked slowdown” in the second half of 2011.

Price pressures in Switzerland are expected to remain subdued for some time, while demand remains at levels lower than they were before the recession. Thus, it is unlikely the central bank will tighten monetary policy before the third quarter of 2011.

Market Reaction

USDCHF Intraday Chart

Source: Intellicharts – Prepared by Michael Wright

Subsequent to the dovish comments following the SNB rate decision, the U.S. dollar rallied against the Swiss Franc for the second straight day and now looks poised to test the 20-day moving average for resistance. Indeed, the pair was trading near oversold territories yesterday, but downside risks still remain as our speculative sentiment index stands at 3.2, and signals for losses.

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