The Swiss Franc (CHF) retreats on Wednesday against the US Dollar (USD) just hours before the Swiss National Bank's (SNB) eagerly-awaited interest rate decision on Thursday at 07:30.

Investors are closely watching for any signals of a possible reintroduction of negative interest rates or adjustments to the exchange rate strategy.

For the time being, the dominant scenario is for the key interest rate to remain unchanged at 0%, as the SNB seeks to preserve the delicate balance between economic support and price stability.

Monetary policy under pressure

The SNB meets in a context marked by several headwinds. Swiss inflation has been back in positive territory for three consecutive months, at 0.2% year-over-year in August, putting it within the official target of less than 2%.

"Inflation has slightly exceeded the SNB's forecasts, suggesting that the deflationary threat has abated", emphasize Nomura's analysts. Against this backdrop, the central bank has some room to maneuver and keep interest rates at zero.

However, the Swiss economy is facing a major external shock: the increase in US customs duties to 39% on a large proportion of exports.

This blow is weighing on growth prospects for the second half of the year, even if certain key sectors such as pharmaceuticals and Gold remain unaffected for the time being.

"Tariffs are creating a lot of uncertainty, and many companies are investing less," admitted SNB President Martin Schlegel in an interview with Migros.

Negative rates: A distant but not abandoned option

The memory of negative interest rates, abandoned in September 2022, continues to haunt the markets. However, according to a Bloomberg survey, only one economist, out of 24, anticipates a return below zero this week.

As SNB Vice-President Antoine Martin reminded, according to Nomura, "at this stage, we see no risk of deflationary developments". The official line, therefore, remains clear: negative rates would only be reintroduced in the event of a sharp and persistent deterioration in the economy.

Nevertheless, Rabobank points out that the SNB does not hesitate to take surprising measures to counter excessive appreciation of the Swiss Franc. In times of geopolitical tension, the Swiss currency retains its safe-haven status, so a surge in demand for CHF could rekindle the debate.

"The SNB could reopen the door to negative rates if economic activity shows tangible signs of tariff-related weakness", notes the bank.

UBS, for its part, believes that "the threshold for a return to negative territory remains high".

Finally, a new element has entered the debate. Starting with this meeting, the SNB will publish a summary of its discussions four weeks after the decision. This initiative aims to increase transparency, in line with that of the major central banks. It remains to be seen whether this gesture will be enough to guide CHF traders through a period of persistent uncertainty.

Technical analysis of USD/CHF: The downtrend is not yet in question

USD/CHF 4-hour chart. Source: FXStreet.

The USD/CHF pair is currently in a short-term bearish channel, visible on the 4-hour chart, and is in a rebound phase after last week's failed bearish breakout attempt.

Within the channel, the currency pair is approaching a potential descending resistance line at 0.7960, reinforced by the 100-period Simple Moving Average (SMA) at the same level.

A breach of this threshold could pave the way for a retest of the channel's upper bound, currently at 0.8015.

Conversely, a failure below resistance and the 100-period SMA could encourage a further downward correction towards the bottom of the channel at 0.7870.