Waning central bank support for the Swiss franc

Waning central bank support for the Swiss franc

While the currency will continue to benefit from its ‘safe haven’ status, the withdrawal of central bank support and a possible improvement in the global economy later this year should clip its wings.

On 17 January, the chairman of the Swiss National Bank (SNB) recognised that while a strong franc had helped quell inflation, it was also hurting Swiss firms. The later point may have a greater effect on the direction of the Swiss franc in the near term. Jordan's comments make it more improbable that the SNB will intervene again to prop up the franc unless the currency drops too fast or inflation rebounds too strongly for the central bank's liking. Indeed, given the relatively subdued economic outlook, Jordan’s comments would seem to increase the chances that the SNB follows other major central banks’ lead by cutting rates this year. In addition, recent data on capital flows also point to a less supportive environment for the franc in 2024.

We acknowledge that the downward pressure on interest rates globally may help the low-yielding Swiss franc through a narrowing of interest-rate differentials. As well as rising tensions in the Middle East (in the short term at least), the currency could also be helped by a resurgence of concerns among investors about highly indebted economies in an environment of higher interest rates. This could become a concern in some European countries and in the US ahead of the November presidential election. In such circumstances, the safe-haven franc could be expected to benefit from Switzerland’s low and stable debt-to-GDP.  However, should the global economic outlook improve later this year, as we believe, investors are likely to search for higher returns than those offered by Swiss assets.

Overall, our scenario remains unchanged from before. In the next three months, the Swiss franc may remain strong relative to the euro in the context of weak economic activity. But the expected deterioration in capital flows into Switzerland should eventually takes its toll on the franc and lead to some underperformance later this year. Our three-month projection is at CHF0.95 per euro while our 12-month projection stands at CHF0.99. Based on our EUR/USD forecasts, the implied USD/CHF rate is at CHF0.91 per USD and CHF0.90 on a three-month and 12-month time horizon, respectively.

Please confirm your profile
Please confirm your profile to continue
Confirm your selection
By clicking on “Continue”, you acknowledge that you will be redirected to the local website you selected for services available in your region. Please consult the legal notice for detailed local legal requirements applicable to your country. Or you may pursue your current visit by clicking on the “Cancel” button.

Welcome to Pictet

Looks like you are here: {{CountryName}}. Would you like to change your location?