Goldman, JPMorgan Bet Strong Franc Will Shrug Off SNB Rate at 0%

(Bloomberg) — Wall Street’s biggest banks are betting the Swiss franc’s strength and haven appeal will cope with the potential return of subzero interest rates in Europe.

Analysts at JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley see the franc holding its ground against the euro and adding to a stellar rally against the dollar by the end of the year. That view comes even as the Swiss National Bank is widely expected to cut rates to zero on Thursday — with some traders seeing a drop below that later in 2025. 

The possibility of slashing rates that low is typically a signal to dump a currency. In Switzerland, the franc’s role as a haven means it just keeps pulling in funds anyway — taking it to near the highest in a decade against both the euro and dollar — as investors stress about growing geopolitical and economic risks.

“We expect these global drivers to be more important for the direction of the franc in the near term than domestic policy, and think the franc should remain supported even in a backdrop of negative rates,” said Goldman strategists including Kamakshya Trivedi, referring to the currency as the “safest haven.”

Among the Wall Street crowd, JPMorgan is the most optimistic about the franc. It anticipates a 25 basis-point cut by the SNB to 0% on Thursday could even provide “modest support,” in a relief rally given the market is factoring in the possibility of even bigger easing. The SNB’s rate has been positive since 2022, when seven years of subzero ended.

Strategists including Meera Chandan see the franc hitting a decade-high of 0.91 per euro by year-end, strengthening from around 0.94 now, among the most bullish calls in a Bloomberg poll. 

Against the greenback, both they and peers at Goldman see it adding to this year’s 10% rally to take the franc to 0.76 per dollar. Morgan Stanley also expects a sluggish dollar continuing to benefit the Swiss currency.

Currency Gold

Hedge funds are gunning for more gains in the franc. They have raised bets in favor of the currency to the highest in nearly four years, according to the latest weekly positioning data from the Depository Trust & Clearing Corporation.

That’s likely a response to the tariff war and violence flaring up in the Middle East. The Goldman strategists said during both recent and historical instances of conflict, the franc typically performs like gold.

The franc’s strength is a headache for the SNB, as it adds to disinflationary pressures via imports. While some market players think this means it could intervene to curb further gains, any such move would provoke the ire of the US. Washington has already added Switzerland to a list of countries to monitor for currency manipulation — one of the issues behind Donald Trump’s move to impose hefty trade tariffs around the world.

“It’s better not to take such risks in this period,” said Sascha Kever, chief investment officer of PKB Private Bank in Lugano, Switzerland. “The first line of action will be interest rates, even if that means going negative,” he said, adding that would open the door to a little franc weakness in the short term, but nothing more.

Currency options traders are positioning for some franc weakness, with limited conviction. Data from the DTCC since early May points to investors leaning against the franc in most weeks, without building a sustained directional bias.

Meanwhile so-called risk reversal options, which measure the premium for bullish versus bearish bets, show sentiment is the least negative on the euro-franc pair in two months. That may reflect the euro’s revival, plus the potential for the Swiss currency to consolidate.

Even if the SNB eventually intervenes, it will struggle to weaken the franc over the long term, given that lower inflation in Switzerland versus the euro zone will be a constant driver of a more productive and efficient economy, said Greg Hirt, chief investment officer of multi-asset strategies at Allianz Global Investors.

“That simply means that the Swissie in the long term will continue to appreciate,” he said.

–With assistance from Vassilis Karamanis.

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