Amundi Turns Against Swiss Franc as Central Bank Intervention Seen Done

(Bloomberg) — Europe’s biggest asset manager is joining a chorus of investors who are turning bearish on Switzerland’s franc after slowing inflation has eliminated the need for the central bank to prop up the currency.

Amundi SA shifted its position on the franc to underweight, said Andreas Koenig, head of global FX at the $2.2 trillion money manager. He sees the currency possibly weakening about 5% to reach parity against the euro before the end of the year, a view that’s more negative than the median forecast of a Bloomberg poll for 0.98 franc versus the common currency.

The low-yielding franc has already tumbled nearly 3% against a basket of major currencies in 2024, reversing a six-year run of stellar gains.

The Swiss National Bank sold more than 100 billion francs ($114 billion) of foreign exchange in the nine months through September to support the currency and help combat inflation. However, the argument to carry on with the policy has dissipated after inflation cooled to the weakest pace in more than two years in January, with investors betting on rate cuts commencing in June.

“It’s a major conviction that we think it’s going lower,” Koenig said, adding that the move against a “completely overvalued” franc is reflected across Amundi’s main investment strategies.

“If Swiss inflation goes even lower and the central bank acknowledges that and says there is no longer a need for the currency to be strong, the franc can easily weaken more.”

The franc has become the highest-conviction trade among G-10 currencies with TD Securities and Bank of America recommending short positions. Hedge funds and asset managers have been adding to bets for further weakness too, while options markets suggest traders are the least bullish since early 2022.

SNB President Thomas Jordan last month acknowledged that currency strength has been painful for the country’s exporters even as it has dampened price pressures.

Still, the central bank has probably not yet resorted to foreign-exchange purchases, a policy it followed until early 2022, UBS said in a note last month. The SNB publishes a tally of its FX transactions on a quarterly basis and with a three-month delay.

Japanese Yen

Amundi has also re-examined its appetite for other low-yielding currencies, shrinking its long-held overweight position in the yen, according to Koenig. He no longer believes that an exit from negative rates will result in big gains for the Japanese currency, with the Fed’s rate-cutting cycle likely to be a bigger driver for the performance of the yen in the coming months.

“The yen is undervalued and the central bank is threatening intervention,” Koenig said. “Even if the BOJ starts hiking and they go back to zero, the tightening will be relatively limited,” Koenig said. “We are slightly positive, but it’s not a major position anymore.”

(Updates with details on Amundi’s outlook for the franc in second paragraph)

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