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In last week's trading, the Swiss franc continued to outperform most major and minor currencies, topping the foreign exchange market for the second consecutive week, amid accelerated purchases of the Swiss currency thanks to the Swiss National Bank's policies.

The Swiss central bank has once again shifted towards a policy of supporting the local currency due to accelerating inflation in the United States, the United Kingdom, and Europe recently, coinciding with the excessive weakness of the franc in the foreign exchange market.

The Swiss National Bank expressed concern over global inflation developments and the weakness of the local currency. Therefore, it seems that the bank has returned to relying on its strategy that enabled the franc to dominate the global currency market in 2023.

Looking at the list of winning currencies, the Australian dollar was at the bottom due to weak economic growth data in Sydney, which renewed hopes for Australian interest rate cuts this year.

Before detailing the reasons that supported the Swiss franc and heavily pressured the Australian dollar, let's first look at the performance of the eight major currencies in the foreign exchange market over the past week.

The Swiss franc rose by 10 points on the "FX News Today" weekly currency strength index, followed by the Japanese yen in second place with 7 points, then the US dollar in third place with 3 points, and the Australian dollar in last place with a negative 10 points.

Swiss Franc

Looking at the detailed performance of the Swiss franc last week against the seven major currencies, it outperformed the Australian dollar with a 1.8% rise, reaching a two-month high of 1.6952 dollars on Friday, June 7.

It rose by 1.7% against the Canadian dollar, reaching a three-month high of 1.5384 dollars on Friday, and increased by 1.3% against the New Zealand dollar, reaching a three-week high of 1.8278 dollars on Friday.

It added 1.1% against the euro, reaching a two-month high of 0.6970 francs on Tuesday, and rose by 0.8% against the British pound, reaching a three-week high of 1.1363 francs on Tuesday.

It rose by 0.65% against the US dollar, reaching a three-month high of 0.8880 francs on Friday, and increased by 0.3% against the Japanese yen, reaching an all-time high of 175.38 yen on Thursday.

Thomas Jordan

The Governor of the Swiss National Bank, "Thomas Jordan," recently stated that the central bank may start selling foreign exchange reserves to defend the value of the local currency.

Speaking at the Bank of Korea's 2024 international conference, Jordan said: "If the upside risks to inflation materialize, it is likely to be associated with a weak Swiss franc, which we can counter by selling foreign currencies."

The Swiss franc has been under strong negative pressure since the Swiss central bank cut interest rates last March and indicated that maintaining a strong currency was no longer a priority.

Inflation in Switzerland

The past three months have seen a surprising rise in Swiss monthly inflation. Recently, prices in Switzerland increased by 0.3% on a monthly basis in May.

Growth in Switzerland

According to the Federal Statistical Office, Switzerland's GDP grew by 0.5% on a quarterly basis in the first quarter of this year, after growing by 0.3% in each of the previous two quarters, and higher than market estimates of 0.3% growth. This is the fastest growth rate since the second quarter of 2022.

The strong growth was driven by services and retail trade, indicating higher domestic demand and consumption levels, which could limit the deceleration of inflation in the country.

Swiss Interest Rates

The above data provides important context for Thomas Jordan's speech, in which he expressed concern that the franc's weakness might contribute to inflationary pressures.

Clearly, this issue has returned to focus, and the Swiss central bank will not want to appear as though it made a mistake by cutting the interest rate prematurely.

Consequently, the likelihood of the Swiss National Bank cutting Swiss interest rates by about 25 basis points again at its meeting on June 20 has decreased.

Opinions and Analyses

• Charlotte Ong, European forex markets analyst at HSBC, said: "After facing significant downside pressure in recent weeks, the Swiss franc saw some relief last week."
• Ong added: "From our perspective, part of this may stem from recent comments made by Swiss central bank governor Thomas Jordan."
• HSBC recently turned bullish on Swiss franc forecasts, noting that the Swiss central bank may not be as cautious as its G8 peers. This is particularly important as Swiss inflation has proven to be more resilient than expected recently.
• Ong explained: "Macroeconomic dynamics have changed since the first quarter, as price pressures have proven to be more stable than expected, and the currency weakened significantly in Swiss franc carry trades."
• Ong added: "Under these circumstances, the 'weak Swiss franc' stance could only exacerbate inflationary pressures. This aligns with Governor Jordan's statements."
• HSBC said: "The franc could remain vulnerable in the short term as markets continue to favor higher-yielding currencies."
• The bank's analysts added: "But in the medium term, downward pressure on the Swiss franc should diminish, especially if the Swiss central bank begins selling foreign currencies."

Australian Dollar

The image above illustrates the losses incurred by the Australian dollar last week against the seven major currencies in the foreign exchange market, due to renewed hopes that the Reserve Bank of Australia might cut interest rates this year.

The Australian economy grew by 0.1% in Q1 2024, less than market expectations of 0.2% growth, and the economy grew by 0.3% in Q4 2023.

These data have reduced the tight conditions facing the Reserve Bank of Australia and increased the likelihood of a 25 basis point cut in Australian interest rates before the end of this year.