The Swiss franc strengthened against the euro and eased slightly versus the dollar on Monday with eyes on the SNB's policy meeting on Thursday, where it is widely expected to raise interest rates by 25 basis points.
As the hike is already priced in by markets, focus will be on the accompanying Swiss National Bank statement and most importantly any changes to its inflation outlook, analysts said.
Recent Swiss economic data point towards an upward revision in SNB forecasts for both inflation and economic growth, UBS analyst Reto Huenerwadel said. "Given the ongoing moderate inflationary pressures we are looking for a well balanced press communique," Huenerwadel said in a note. The franc had strengthened slightly to 1.6508 against the euro compared to 1.6517 francs late on Friday - still above the recent 8-1/2 year low of 1.6614 hit on May 20.
Against the dollar, the franc had weakened to 1.2360 versus the dollar compared to 1.235 francs late on Friday. Analysts said the franc would remain under pressure for the months to come as the low short term interest rates in Switzerland made it an ideal funding currency for carry trades. Carry trades have pressured the franc for months as investors take advantage of the differential between Switzerland's short-term benchmark rate of 2.25 percent and the 4.00 percent in the euro zone.
While the SNB is expected to raise rates by 25 basis points on Thursday, the Swiss central bank is unlikely to outpace the ECB in the months ahead as the benign inflation in Switzerland does not provide any reason for a more aggressive tightening.