CHF: Limited SNB tools keep franc strong – Commerzbank
Commerzbank’s Michael Pfister notes that the Swiss Franc has reached a new all-time high just below 0.90 against the Euro despite repeated Swiss National Bank warnings about possible FX intervention. He highlights strong fundamental support from geopolitics, low inflation and solid public finances. Pfister expects any SNB intervention to offer only short-term relief, with medium-term forces still favoring CHF strength.
SNB warnings fail to cap Swiss Franc
"The franc reached a new all-time high of slightly below 0.90 against the euro this morning, and remains close to record levels in terms of trade-weighted value."
"There are fundamental reasons to suggest that the franc will strengthen further in the coming years: the tense geopolitical situation, low inflation by international standards and the significantly better fiscal situation."
"Therefore, if markets price in another supply shock for other industrialised countries - with all that this implies, such as higher inflation followed by a central bank response in the form of higher interest rates, coupled with new spending packages from heavily indebted countries - the Swiss franc will also benefit."
"There is certainly a scenario in which the Swiss franc underperforms other currencies. This would happen if other central banks raised their interest rates significantly in response to higher inflation, while the SNB only raised theirs modestly or not at all. However, this is still a very unlikely scenario, even if markets are pricing out interest rate cuts again."
"This leaves the SNB with not many options but to intervene. Officials probably hoped that their warnings would suffice. However, the warnings also made it clear how reluctant the SNB is to intervene; a few years ago, it would probably have intervened without warning."
"If the SNB decides that enough is enough, it is likely to intervene actively in the FX market. In the short term, this could halt the CHF's strength, but in the medium term, the fundamental reasons continue to favour the franc."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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