News & Analysis

The Swiss Franc appreciated sharply over the last five months, with the EURCHF cross sitting near the 1.07 handle in early August, a far cry from the 1.11 handle it was trading at in March. The CHF appreciation resembled the dynamics in 2020, when markets tested the Swiss National Bank’s tolerance for a strong currency, with the central bank finally drawing the line at the 1.05 level. At that point, the cross rebounded swiftly following aggressive central bank intervention in FX markets, with the SNB’s actions reflecting the high sensitivity of monetary policy to elevated export costs. With risk-off narratives during Q2 and early Q3 compounding the franc’s relative strength, investors are again wondering whether the Bank will intervene or be more patient. We argue that there might be some room left before the SNB feels pressured to defend the franc to the extent it did in 2020, especially under the careful watch of the US Treasury on potential “currency manipulation” claims and likely reflation dynamics in advanced economies on the way. However, we maintain our conviction that the SNB is ultimately poised to defend their stance on the currency, meaning the peak for the Swiss franc may be reasonably close to recent highs.

Read our August CHF Outlook here:

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