The EUR/CHF pair has dropped for three days in a row as the Swiss Franc strengthened after the Swiss National Bank (SNB) decided to keep the policy rate at 0%. This decision was expected and shows that the SNB is being cautious but steady. The focus now shifts to the European Central Bank (ECB) meeting next week, where rates are likely to remain stable. The SNB’s choice to maintain the policy rate also comes as inflation pressure is low. In November, inflation dropped to 0.0% from 0.2% in August. The SNB predicts inflation to be around 0.2% in 2025, 0.3% in 2026, and 0.6% in 2027, assuming the rates stay the same.

Switzerland’s Economic Outlook

Switzerland’s economy shrank in the third quarter, but there is a modest improvement expected due to slightly better global conditions. The Gross Domestic Product (GDP) is forecasted to grow by just under 1.5% in 2025 and about 1% in 2026. While negative rates could still be a possibility, SNB Chairman Martin Schlegel believes the chances of returning to negative rates are low, showing a higher threshold for such measures. Looking ahead, attention shifts to the ECB’s upcoming interest rate decision. The ECB is likely to keep current key policy rates, but recent comments from policymakers suggest that a rate hike might happen next year. With the Swiss National Bank holding its policy rate at 0%, the strength of the Swiss Franc is pushing the EUR/CHF down toward the 0.9300 level. This response indicates that a steady policy is interpreted as good news for the stable franc. Traders should see this as a continuation of the trend over the past three days. The main difference to watch is between the SNB and the ECB. Eurozone inflation was estimated at 2.8% for November 2025, raising speculation that the ECB may need to take action in 2026. In contrast, Swiss inflation is reported to be 0.0%, giving the SNB no reason to consider raising rates.

Market Implications and Trading Strategies

This growing gap in policies suggests that traders might consider strategies to profit from further declines in the pair, like buying put options on EUR/CHF. The SNB expects Swiss inflation to remain below 1% until at least 2027, maintaining this policy difference for now. The most likely direction for EUR/CHF seems to be downward in the coming weeks. However, traders should be cautious about the SNB’s willingness to step in if the franc strengthens too quickly. Recent data revealed that the SNB’s foreign currency reserves are substantial at CHF 715 billion, providing it with enough power to intervene if needed. This possible intervention could set a lower limit for the EUR/CHF pair if it declines too quickly. The situation reminds us of the market turmoil in January 2015 when the SNB suddenly removed its policy peg, causing sharp volatility. Even though the SNB claims that intervention would only happen at high thresholds, past experiences suggest we should remain alert. This awareness should prevent traders from making large one-sided bets against the franc. With uncertainty surrounding next week’s ECB meeting and the ongoing risk of SNB action, trading implied volatility may be a wise choice. Currently, one-month implied volatility for EUR/CHF has risen to 6.5% from 4.8% last quarter. Options strategies that can benefit from price fluctuations, regardless of their direction, might be a good approach as the year comes to a close. Create your live VT Markets account and start trading now.

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