Swiss Franc Nears Decade High on Tariff, Political Uncertainty
(Bloomberg) — The Swiss franc is closing in on its highest levels in a decade against the euro, as haven demand ripples through global markets due to renewed tariff and political concerns.
The currency touched 0.92102 per euro on Tuesday, an 11-month high, leaving it now about 0.2% shy of levels last seen in January 2015.
It’s the only Group-of-10 currency to appreciate against the dollar over the past month following a resurgence in US-China tariff worries, political uncertainty in France and Japan, and renewed strains at US regional banks.
In doing so it has emerged as the standout risk hedge in FX, given Europe, US, China and Japan face concerns ranging from growth to fiscal expansion and debt sustainability.
Options flows show that since US President Donald Trump’s latest tariff escalation, demand for the Swiss franc versus both the euro and the dollar has dominated consistently on every bout of risk aversion, with renewed concerns over US regional banks the latest example.
Traders are seeking the currency’s haven qualities relative to the euro, said Kit Juckes, head of FX strategy at Societe Generale SA.
Hedging costs have risen to their most elevated since mid-August, with the premium to own franc topside through options returning to levels last seen in May as traders seek protection and directional exposure.
What Bloomberg Strategists Say…
“The franc is set to go from being pricey to pricier as the hunt for havens narrows, with gold and the yen effectively ruling themselves out of contention. …Its real-effective exchange rate is elevated, but even so, with the SNB having turned more selective about when it intervenes, the currency is likely to stay stronger for longer.”
— Ven Ram, Macro Strategist. Read more here
The policy backdrop will be tested this week. Swiss officials will publish a summary of their September interest-rate meeting on Thursday, with investors set to parse the document for clues as to how the Swiss National Bank intends to handle a currency pressing multi year highs.
Traders Hunt Clues On Strong Franc As SNB Opens Up on Rates
With the SNB’s key interest rate back at zero and a history of targeted intervention, markets will look for any hints on thresholds for action and the degree of tolerance for further franc strength.
Economists have largely abandoned the idea of a return to negative rates, consistent with money-market pricing, but the bank has a range of policy options as it seeks to balance imported disinflation against external shocks.
Analysts at Danske Bank A/S argue the central bank would be inclined to lean on intervention before contemplating negative rates, noting that a stronger real trade-weighted franc and potential tariffs on Swiss exports to the US could cool price pressures further. Even so, they look for EUR/CHF to drift lower over the coming year.
(Updates with pricing.)
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