With interest rates in developed economies falling but still significantly higher than their respective troughs in 2021-2022, some pundits are claiming that we are entering a new interest rate regime. Gone, they say, are the days of near-zero or even negative interest rates. The Swiss National Bank (SNB) may lead some pundits to rethink their logic.
On June 19, 2025, the SNB reduced its policy rate by 25 basis points to 0.00%. Here are some reasons behind the .
1. No Inflation– As shown on the right in the graph below, the latest reading was -0.1%. The latest reading marks the first deflationary reading in slightly over four years. Moreover, the SNB’s inflation forecasts are a mere +0.2% for the rest of 2025 and +0.5% in 2026.
The SNB states: “inflation is likely to remain very low in the coming quarters.” The bank believes that without cutting rates, inflation could fall further, pushing Switzerland into a recession.
2. Strong Currency – As shown on the left side below, the has increased by over 10% against the dollar this year and is at its highest levels since the Financial Crisis. An appreciating Franc makes Swiss exports more expensive, thus hurting its global competitiveness.
Lower rates reduce the incentive for foreign investors to hold francs, which should ease some of the upward pressure on it. The SNB also signaled that it is ready to intervene in the currency markets to arrest further appreciation.
3. Support the Economy – The SNB expects to remain within a range of 1% to 1.5% for the remainder of this year and 2026. Lower rates should stimulate consumer spending and investment activity among corporations and small businesses.
What To Watch Today
Earnings
Economy
Market Trading Update
As noted yesterday, the breakout of the bullish wedge was encouraging and led to a decent rally into the close. As discussed, use any market weakness to add exposure as needed, as we are entering a more seasonally strong month of July.
One asset we continue to watch very closely is the . As shown, the dollar is deeply deviated from its longer-term mean, oversold on multiple levels, and has been basing since April. As noted last Friday, the incredibly negative bias and position against the dollar are excellent contrarian signals for a counter-trend rally at some point.
It is worth paying attention to the dollar, particularly if you are long gold exposure currently. Central banks and foreign holders of reserve currencies have three primary choices to store foreign reserves: US Stocks, US Treasury Bonds, and , as each is traded in US Dollars.
Gold has been a primary choice for reserves over the last two years due to the weakness in the dollar. However, if that reverses, we could see a shift out of gold into stocks and bonds, which should perform better as the dollar strengthens—just something to watch.
Also, a stronger dollar should lead to higher and better performance from energy-related stocks.
There have been many narratives surrounding the recent decline in the dollar, from de-dollarization to the demise of US exceptionalism. Given the depth of the current oversold conditions of the dollar, along with an enormous short position, any counter-trend rally from current levels could be pretty significant.
It is probably a decent time to start taking profits in anti-dollar plays and adding positions that will benefit from a stronger dollar.
Bowman And Waller Leaning Towards July Rate Cuts
In testimony to Congress and last week’s , Chairman made it seem highly unlikely that a could occur at the July meeting. To wit, when asked at the FOMC meeting about the potential for a July rate cut, Powell replied- “We don’t need to be in any rush.” Powell and some other members of the Fed think that tariff-induced inflation will prompt them to maintain the current Fed Funds rate until later this year.
However, two Fed members are publicly concerned that the job market is deteriorating and that the impact of tariffs on inflation will be minimal. In their eyes, a July rate cut is a distinct possibility. Consider the following quotes from Michelle Bowman in a speech on Tuesday.
“Should the incoming data continue to indicate that inflation pressures are contained, I would support lowering the target range for the federal funds rate, potentially as early as the July FOMC meeting.”
“Recent data suggest that inflation is moderating, and the risks to the labor market are becoming more concerning. I am increasingly attentive to signs of softness in spending and potential fragility in the economy.”
“I expect the direct inflationary impact of recent and proposed tariffs to be minimal, primarily resulting in one-off price adjustments rather than sustained inflationary pressure.”
Next (LON:), we share Chris Waller’s comments, also made this week.
“I think we’re in a position that we could do this (cut rates) as early as July. That would be my view, whether the committee would go along with it or not.”
“If you’re starting to worry about the downside risk (to the) labor market, move now, don’t wait. Why do we want to wait until we actually see a crash before we start cutting rates?”
“I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don’t want to wait till the job market tanks before we start cutting the policy rate.”
“Any tariff inflation … I don’t think is going to be that big and we should just look through it in terms of setting policy.”
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