the Swiss National Bank surprised many by cutting rates today for the second time in a row. Swiss officials are becoming more concerned. The global rebound that they've been hoping for is instead rolling over. Plus, they don't like what they're seeing in currencies, especially the dollar. Now the Swiss franc has been moving higher the past couple months on Safe Haven demand, which is the flip side of the growing rally and the safety liquidity of government bonds like treasuries. But to that end, we've got new and concerning load in China's Yuan, Japan's Yen, Brazil's real, which we'll talk about as we get through this video. The dollar is on the move and in the wrong direction for reflationary hopes, and it's not just those in Switzerland, all over the rest of the world too. So basically, the SNB cut rates again as more insurance for the Swiss economy as their Outlook really starts to dim. And it's not just the Outlook, it's already unfolding as the strong dollar strong performance is strongly

indicating, in other words, we weakness in every direction. After all, that's what rate cuts are all about - reacting to weakness. Now, the Swiss National Bank's rate cut was somewhat of a surprise. Traders had figured out that they were likely to cut rates because of the behavior of the Franc against the US dollar. Again, Safe Haven demand in the Franc driving its price against the dollar higher. However, economists are still seeing inflation, as they are always likely to do, according to Bloomberg yesterday. Yesterday, just before the SNB met, economists are roughly split on the outcome, with a small majority anticipating that the Swiss, whose rate cut in March preceded any other from the world's 10 most traded currency jurisdictions, will now also become the first from that group to halt its easing cycle. And of course, economists got that wrong, as the Swiss bank itself said today, We're relatively hopeful that the European economy and the global economy can continue to rebound after a somewhat positive first quarter, but we continue to see worrisome signs that maybe it's not.

going to starting with the fact that Global growth already even if it is picking up. It's picking up from a very low level after all. Europe has been in recession for a couple years here, and it hasn't looked all that really all that much better anywhere else in the world. The Swiss said the federal government expert group on business cycles continues to expect Switzerland's economic growth in 2024 to come in well below average, and GDP adjusted for sporting events. And just an aside here, you got to love that they adjust GDP for sporting events. That measure was 1.2%, or the expectation. The March forecast was 1.1%, so they upgraded it a little bit. But as the global economy gradually recovers, growth is likely to normalize to 1.7% in 2025, assuming that the global economy is able to continue to recover. The US economy weakened noticeably in the first quarter, and Japan's GDP contracted. On the other hand, the UK and China saw relatively strong

GDP growth as well though. I wouldn't say China was strong. The Euro Zone recovered somewhat from the previous weak phase, but growth is likely to remain subdued in the coming quarters. This will have a correspondingly dampening effect on exposed areas of the Swiss export economy. Overall, global demand from the Swiss perspective is expected to remain below its historical average in the upcoming quarter. The forecast for Switzerland, as for the global economy, is subject to significant uncertainty. Developments abroad represent the main risk, and there's a huge danger that it will disappoint. And the Swiss know it. They reference weakness in the United States, they reference Japan's recession, they reference Europe potentially staying subdued and not actually recovering as much as they would hope, as well as the rest of the economies, including the BRICS economy, which is really important to the rest of the world. Starting with China, they said Chinese growth was strong, but you can tell even the Swiss are really questioning whether or not that's actually the case. It was better than expected, but it wasn't actually

good nor does it indicate that China is in fact recovering or rebounding but that none of that really matters those are the expectations those are the hopes that Swiss officials are putting down in their models or coming out of their models from their assumptions that after the last couple of really tough years it's got to get better doesn't it well appearing on CNBC earlier today Swiss National Bank head Thomas Jordan was a little bit he was a little bit less confident a little bit more a little bit more concerned about the way things were heading he said we have inflationary pressures that slightly declined we also have a strong Swiss frank and we have an increase in uncertainty globally and the uncertainty is just a term that keep using for weakness so we came to the conclusion that given those circumstances it is best to lower rates by 25 basis points there are big swings in the exchange rate that could have an impact or really big changes in the economic Outlook of the world economy but like we keep saying it's not the

Outlook, it's the reality, and the big swings in currency exchanges are not just about the Swiss franc strengthening on safe-haven demand. It's about what the US dollar is doing and what the US dollar is telling us, not against the Swiss franc. Again, the franc against the dollar is safe-haven demand, but the franc oftentimes is just the flip side of Treasury rallies. Safe-haven demand in treasuries pushes rates down, which means that there's more attractive safe-haven demand over in Switzerland, so the Swiss franc rises against the US dollar. Now, there are obviously exceptions to that. You look at the Swiss franc's history in 2022, for example, that was not so safe-haven as the Swiss National Bank's dollar auctions in October 2022 showed us. So, the Swiss franc wasn't a really good safe haven in the latter part of 2022, primarily because of the real concerns over the energy crisis, war fears, and everything else in Europe. But since November of 2022, the Swiss franc

has been generally strengthening, which makes sense. Safe Haven from the rest of Europe because ever since then, the European economy has been in recession and has been unable to get out of it. So there's been some variation in the Frank's Trend against the dollar, but really it's been rising against the dollar not because of interest rates, but because increased modestly increasing Safe Haven demand as Europe continues in recession and the rest of the global economy doesn't really appear like it's going to get out now. It had weakened, it had turned around in the early part of this year, really from the end of December. So the Swiss frank started to weaken through the early parts of 2024 up until around April, and that was kind of consistent with what the Swiss are talking about an uptick in global growth, an uptick in, and especially European GDP or UK GDP, but there are still remain a number of questions about whether that's just a temporary rebound or if this is something substantial, a change in condition. So if it was, we would expect

the Swiss franc to continue to weaken, but instead it started to turn around around May 1st. So, it has been strengthening all over again as Thomas Jordan said, really for the last couple of months, which is a concerning sign that maybe the European recovery that so many people are penciling in, especially for contributing to reflation around the world, maybe that is just another false dawn. And this May-June rise in the franc seems to have gotten the SNB's attention for both franc reasons as well as economic concerns. Not that rate cuts from the Swiss National Bank are going to do all that much about either if the Swiss economy, if the European economy is going to continue to roll over and weaken, that's going to be bad for the Swiss. And if there's more safe-haven demand because of all the stuff going on in the world, the franc is going to continue to strengthen whether the Swiss National Bank cuts rates or not. So if we look at the rest of the

world through the US Dollar exchange value. What we see is everything that is concerning the Swiss National Bank starting with Europe, the Euro. The Euro, you know, there's a reason why the European Central Bank cut rates in June just a couple weeks ago because they realized that the European economy is indeed in trouble, that there's a good chance if not a majority chance that it isn't going to recover here even though they would like it to, and so violating all of their previous statements and all their previous promises to focus on inflation until the very end, suddenly they're like, no, well forget about that, let's cut rates here. So the Euro got clobbered in 2022 for very obvious reasons. They had funding problems, collateral disaster, the economy fell into recession, the energy crisis that was at one point feared to be catastrophic, and then the Euro rebounded in the latter part of 2022 as it turned out that the winter was going to be mild. Europe was not going to run out of

energy oil prices were starting to come down. Energy prices were coming down, so Europe wasn't going to get the worst of the worst case. But Europe did fall into recession, from which it has yet to recover, and the euro exchange value, in many ways, reflects that situation. It has gone basically sideways to moderately lower against the US dollar. As Europe continues to stick around in recession, there's no change in 2024 either, which is a key sign that maybe those hopes for a rebound are a bit misplaced. So it's another one of those signals that suggests that reflation hopes, which should be, which should lead to a falling dollar exchange value against more than against basically every currency in broad fashion, just isn't happening. Of course, the big one, a big one, but maybe in many ways the big one, China's Yuan. We keep talking about the Yuan because the Yuan keeps telling us we need to pay attention to it, and you've got to believe that the Swiss National Bank and the Swiss officials are doing that, doing just that. They've talked about the

bricks economy being an important contributor to global growth. And for Switzerland, the Swiss National Bank projections show about half of their growth rate is due to exports and global growth contribution. So they're definitely paying attention as they keep saying to what's happening in the rest of the world. And that means you got to pay attention to China. Today it fell pretty sharply for a one-day change, especially as low as it is already against the 2% daily limit. It hit another new low below 726 for the first time since November 13th. So it completed the roundtrip from last year's rally. And the offshore rate cnh is down to 72890, almost 729 on the offshore rate. That's the lowest since November 2. And even Chinese authorities are starting to realize they can't hold it up any longer. According to cets, the pboc piced uh fixed the midpoint today at 7192, so almost 712. That's the lowest since November as well. So you can see that the

pboc is giving up on a rebound in China's Yuan, and they're also giving up on trying to hold it up in the way that they have over the last several months. And just to be clear, this is not devaluation, this is not some kind of export stimulus. This is China showing you they want the Yuan to at least stabilize, if not actually strengthen. And they've been undertaking a number of efforts to try to make that happen, but they're realizing it isn't working, including all of their efforts that they've been focused on offshore in Hong Kong and the CNH market. And it's just not working, the currency continues to want to go down. And why does the currency want to go down? Well, everybody wants to blame J Powell and his reluctance for rate cuts, but that's not it. It's the fundamentals of China and the global economy. CNY down equals bad for both. And of course, the Swiss National Bank, as I said, are taking those into account when they're.

deciding on their own interest rate policies. Of course, we can't mention Yuan without mentioning Yen. The saga of the Japanese Yen continues. As of today, China's Yuan hits a new low. Japan does the same thing. It's now almost 159, which is lower than when the Japanese government intervened a couple, not even a couple, months ago. They spent trillion yen to buy themselves less than two months' time on the Yen, which is absolutely ridiculous. But that's why the governments never really want to intervene, especially in this situation, because it proves that they're just smoking mirrors. They basically bought not even two months' time, and the Yen continues to go down. Anyway, of course, officials said at the time that they don't agree that there was any fundamental reason why the Yen would continue to weaken. Yet what does the Yen continue to do? It weakens anyway because the fundamentals, like those across the rest of the euro-dollar system, are they're not reflationary.

not like Japan's economy is picking up out of its recession. Global prospects continue to dim, not go in the other direction, which would be consistent with inflation. Remember, the only reason Japan's Yen turned around in 2022 after the government's intervention was because China reopened. And it's not like the Chinese have another reopening up their sleeve in 2024. In fact, the fundamentals in China match those in Japan, which is why Yuan and Yen keep hitting more and more new lows. We also should mention here too something that's new in Japan. After selling off all year, Japanese government bonds have experienced a little bit of a rally over the last couple weeks, really since the early part of this month. While the Bank of Japan continues to hike rates and say it's going to going to hike rates, Japanese interest rates that were Rising have suddenly turned around because at the end of the day, Japan's economy doesn't warrant any rate hikes whatsoever, as incoming data shows that Japan's recession isn't getting any.

better let alone becoming an inflationary recovery. As the Bank of Japan keeps talking about, there's no evidence in wages or spending or household incomes or anything that that's the case. And eventually, it gets to be such a disparity that even Japanese bond yields, which are pushed higher, there's a limit to how far the Bank of Japan can hike rates intentionally during a recession. And the reason why the Bank of Japan is hiking rates anyway is because they're desperately trying to rescue the Yen, which keeps falling because the fundamentals of the Japanese situation are more like what we see in the rally in JGBs than the rate hikes that the Bank of Japan would like to enforce for reasons that have nothing to do with the actual economy. The Yen is falling because the local and global economic prospects, like everywhere else, are getting worse, not better. One final currency that we really need to pay attention to here, it's another one of the BRICS, again the Swiss National Bank focused on the

bricks and talked about the bricks well that's the be in bricks which is Brazil. The Brazilian real Has Fallen sharply since April and it is down to at last check 544 to the dollar which is the lowest since November of 2022 and it is moving lower quite quickly. Of course theyve want to blame J Powell and the uncertainty over rate Cuts in the US but that doesn't make any sense whatsoever again fundamentals in currency exchange values just like fundamentals in interest rates. The problem is people don't like what those fundamentals say especially if you're in any position of authority. But Brazil Brazil's economy picked up in the first quarter of this year which was somewhat positive at least it seemed to be somewhat positive except a lot of that was artificially driven by a huge increase in government spending. But that government spending has started to really pressure Brazil's fiscal situation. Dollar providers are becoming increasingly risk averse Brazil it's not going to work out the economy it's only on a temporary sugar high from

the fiscal push and that that temporary Sugar High driven by the fiscal push is going to push Brazil's financial situation and fiscal situation into the Danger Zone. More problems all across the board and it contributes to the global economic situation lack of reflation as well as it is a reflection of the same thing like I said. Everyone wants to blame J Powell and the Federal Reserve for their problems and their woses. It's easier to say that the fed's uncertainty about Ray cuts are the reason why the dollar is going up against all of these currency and going up sharply against all these currency rather than admits that Dollar Rising or the strong dollar is a strong indication of very weak fundamentals. Nobody wants to admit that it's just like US treasuries nobody wants to admit that treasury rates going lower are a bad sign about fundamental prospects reflation is more fun and more certainly more fun to think about if a reflationary wave was building like the Swiss National Bank is hoping for then.

we'd see the dollar falling in a broad-based fashion, but it isn't. It is rising substantially against these major currencies, and it is at least higher in that broad-based fashion. The Swiss National Bank is right to cut rates, and it knows it. Not that the rate cuts are going to do any good for the economy or the Swiss franc. It's the Euro Dollar's world, and the Swiss know it. And sadly, the euro dollar isn't looking reflationary. It's looking increasingly mean. There was some urgency one those Europeans Central Bank cut rates in its last meeting. Talked about that why they violated their inflation pledge in the video link below. As always, thank you very much for joining me. Huge thank you yal University members and subscribers. Until next time, take care.

You Won’t Believe What the Swiss Central Bank Just Did

Monetary science reborn. Rediscovering the principles of currency. Putting central banks where they belong. Welcome to Eurodollar University, your place for all things modern money and monetary science. The YouTube channel for Jeff Snider, from here you can begin to investigate all the ways in which the global monetary system impacts you: economy, politics, investments and more.