Switzerland is increasingly at risk of deflation.

The Swiss franc remains steady at approximately 0.90 francs per US dollar due to the weakening of the dollar amid hopes that President Donald Trump will impose less stringent import tariffs. Meanwhile, Switzerland's inflation rate declined again in December, prompting the Swiss National Bank (SNB) to likely cut interest rates further this year, possibly starting with a 25 basis point (bps) reduction in March. However, investors need to monitor additional economic data, including foreign economic policies, to anticipate future monetary policy trends.

Switzerland’s unemployment rate rose to 2.8% in December, marking the highest level since 2021. The number of unemployed increased by 9,200 from the previous month to 130,300. Youth unemployment, measured among job seekers aged 15 to 24, also edged up to 2.7% from 2.6% in November, with the number of unemployed youth rising by 300 to 12,200. The number of reported job vacancies dropped by 2,500 to 30,400, reflecting a slowdown in the domestic labor market.

Swiss inflation fell to 0.6% year-on-year in December, aligning with market expectations. The decline continues to be supported by falling oil prices, a major cost driver for many industries. Similarly, food prices, a key necessity, also showed a downward trend, dropping by 0.9% following a 0.8% decrease the previous month. Prices for other goods and services fell to 0.2% and are expected to decline further.

The SNB lowered its policy interest rate by an additional 50 bps to 0.5% in December, a more substantial cut than the market-anticipated 25 bps. This marks the fourth consecutive rate cut and the most significant interest rate adjustment since 2015. Borrowing rates saw the steepest drop since 2022, declining by over 1.1%, largely driven by reduced costs in domestic service sectors, such as oil and food prices, which continue to fall. Inflation is forecasted to stand at 1.1% in 2024, 0.3% in 2025, and 0.8% in 2026.

Meanwhile, the central bank predicts Swiss GDP to grow by around 1% this year, potentially reaching 1.5% with continued support from rate cuts. However, rising unemployment, slowing industrial production, and global economic uncertainties particularly geopolitical tensions and uncertain policy directions pose risks to the domestic economy.

Swiss 10-year government bond yields surged to 0.35%, the highest level in a month, as investors assess monetary policy and global economic outlooks. Investors anticipate further monetary easing by the SNB this year due to heightened deflation risks, with possible rate cuts in March and June. However, lower-than-expected inflation led the central bank to reduce rates in December. Additionally, SNB President Martin Schlegel recently indicated that the central bank might lower rates further, with negative rates remaining a tool for managing the currency and protecting exports.

Techical analysis data (5H)

Resistance: 0.9103, 0.9114, 0.9133

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 0.9054 - 0.9073 but cannot break the support at 0.9073, you may set a TP at approximately 0.9114 and SL at around 0.9043 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 0.9103 - 0.9114, you may set a TP at approximately 0.9133 and SL at around 0.9054 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 0.9103 - 0.9114 but cannot break the resistance at 0.9103, you may set a TP at approximately 0.9054 and SL at around 0.9133 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 0.9054 - 0.9073, you may set a TP at approximately 0.9043 and SL at around 0.9114 or according to your acceptable risk.

Pivot point January 21, 2025 09:07 AM. GMT+7