Swiss Franc: Safe-haven support limits losses against Euro – Commerzbank

Commerzbank’s Michael Pfister notes that EUR/CHF has dropped to a three‑month low as the Swiss Franc (CHF) recovers its earlier weakness driven by divergent central bank expectations. He highlights Switzerland’s strong public finances and safe‑haven appeal but points out that EUR/CHF is nearing levels where the SNB previously threatened intervention, suggesting further Franc gains may be harder without renewed Euro‑area stress.

Franc strength meets SNB intervention risk

"EUR/CHF fell to its lowest level in three months yesterday, meaning that the Swiss franc has essentially recovered from its prolonged period of weakness. This is entirely understandable, given that this weakness was primarily due to the policy responses of the central banks. The market had priced in further interest rate rises by the ECB, while expectations regarding the SNB had barely shifted."

"Amidst concerns about a new sovereign debt crisis, the Swiss franc benefits not only from its safe-haven status, but also from the fact that Switzerland’s public finances are much more solid than those of most other industrialised countries. There are also concerns in Switzerland as to whether the debt brake can always be adhered to in the face of demographic change and additional military expenditure. But these concerns pale in comparison to those in other European countries."

"But EUR/CHF is now once again approaching levels at which the SNB threatened to intervene more aggressively in the foreign exchange market just a few months ago. It is therefore understandable that the franc itself has not appreciated any further; although such threats are less effective against a weaker euro. Those betting on lower levels must therefore hope that problems in neighbouring countries worsen further."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)