(Bloomberg) -- The Swiss National Bank is again at the mercy of its bigger neighbors and will have to lean in a more dovish direction to keep its currency under control.

With the franc having touched a two-year high against the euro, SNB President Thomas Jordan and fellow policy makers are feeling the pressure from risks such as trade tensions, a German industrial slump, Italian politics and Brexit.

It’s quite a difference from 2018, when the currency’s weakness provided an unused opportunity for raising the deposit rate from a record-low -0.75%. While no economist surveyed by Bloomberg expects a rate change on Thursday, there could be a tweak to its language on the franc. Yet investors might read that as a sign of nervousness and decide to test officials’ resolve.

Jordan last spoke in public a month ago and described the franc has “highly valued,” the standard term in use since 2017. The currency has risen to as high as 1.1163 since then.

The policy announcement, including new growth and inflation forecasts, is due at 9:30 a.m. in Bern. Given the franc’s level, there’s likely to be another cut to the medium-term outlook for price growth.

Jordan will probably stress that negative interest rates -- deeply unpopular with banks -- and the pledge to wage currency market interventions remain essential for stemming pressure on the franc.

“We have these trade tensions and they should continue in the second half of the year -- and that’s delaying the recovery of the global economy and also Switzerland,” UBS economist Alessandro Bee said. There’s “also the risk of a flight to safety that would pressure the franc.”

The SNB decision comes a week after the European Central Bank said it would keep interest rates on hold until the middle of 2020, longer than previously planned. That ties the SNB’s hands, since Swiss officials have repeatedly stressed their negative rate policy is designed to maintain a differential with the euro area.

The ECB’s move was part of a dovish shift at central banks around the world, including rate cuts in Australia, India and Chile.

Recent bond market developments may also be sparking alarm among SNB staff. The yield spread between Swiss and German 10-year bonds has narrowed, meaning Swiss assets are less unattractive than they once were. The gap is just shy of the level last seen in early 2015 when the SNB announced the -0.75% deposit rate in the run-up to the ECB’s quantitative easing.

While the SNB’s rate is already the lowest benchmark in the world, Jordan has said his central bank can cut further if needed. Given the changed backdrop, investors are beginning to price in such a move.

“With the ECB sounding more dovish, it looks increasingly likely that the SNB’s next rate move may be downwards,” said Matthew Pennill, an economist at Morgan Stanley.

(Updates with bond yields from 10th paragraph.)

--With assistance from Jan Dahinten, Paul Dobson, Harumi Ichikura and Richard Jones.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

©2019 Bloomberg L.P.

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