Swiss Franc: Intervention risk keeps Franc lagging – OCBC

OCBC Bank strategists Sim Moh Siong and Christopher Wong note the Swiss Franc (CHF) has lost much of its safe-haven appeal as Swiss National Bank (SNB) intervention risk and low yields weigh on performance. With inflation below the midpoint of the SNB’s target range and policy rates likely stuck at zero against rising global yields, CHF is expected to remain one of the laggards in G10 FX.

Safe-haven appeal curtailed by SNB

"The CHF underperformed as low yields and the Swiss National Bank's (SNB) willingness to intervene in the FX market continued to weigh on the currency. In the summary of its 18 June policy meeting, the SNB said monetary conditions remain appropriate and saw no immediate need for further action despite rising upside inflation risks."

"Since the outbreak of the US-Iran conflict, the SNB's increased willingness to intervene, if necessary, has curtailed the CHF's safe haven appeal. As a result, the CHF has been driven largely by interest rate dynamics rather than risk aversion."

"Swiss inflation remains below the midpoint of the SNB's 0-2% price stability range, suggesting policy rates are likely to stay at zero for at least the rest of the year."

"Against a backdrop of rising global yields, this should keep the CHF on the back foot despite Switzerland's sizeable current account surplus."