Switzerland’s Unstoppable Franc Brings Fresh Pain to Exporters

(Bloomberg) — Swiss entrepreneur Christian Taennler knew early on that he had to get his business ready for a stronger franc.

Since taking over the firm in 2017 — two years after the country’s central bank dropped a currency cap — he’s been streamlining Alme AG, cutting jobs and automating production at the precision components firm. But as the currency has continued to advance, making his goods more expensive, he’s having to fight harder to keep customers from going to rivals.

It’s a perennial problem for Switzerland’s exporters, who are stuck between cutting prices or losing business, but it’s now rapidly getting worse. As the war in Iran drives money into haven assets, the franc is near the strongest in more than a decade against the euro and the dollar, squeezing firms like Alme and forcing them to make tough choices.

“The key question for us is whether we want to invoice in dollars in the future,” Taennler said. That would cost about 20% of profit margin, “but at least we would avoid customers building new supply chains and permanently cutting us off,” he said.

The franc has risen about 3% against the euro this year and briefly broke through 0.90 against the single currency this week. It’s up less against the dollar, though the euro is more important given the trade between the bloc and Switzerland.

The gains prompted the Swiss National Bank to step up its rhetoric, saying it’s “increasingly prepared” to intervene amid the market fallout from the Middle East conflict.

Read more from Bloomberg Economics: SNB PREVIEW: Strong Franc Puts FX Intervention Risk in Focus

That was welcomed by manufacturers after the SNB shifted away from deploying vast sums to keep the franc below levels seen as overvalued. President Martin Schlegel also said policymakers can’t focus on “specific industry concerns,” and noted how the franc is a spur for businesses to improve.

“It’s a relief that the SNB has so far shown it’s alert to safe haven flows in such uncertain times,” said Jean-Philippe Kohl, head of economic policy at manufacturing lobby Swissmem. He added that he believes the country’s exporters are “very much on their radar.”

Industry, which has been in a long-term downturn, is desperate for any support it can get. Manufacturers cut 6,600 jobs last year, according to Swissmem, factories are running below their average long-term potential, and the country’s overall unemployment rate is creeping higher.

The franc is now back as Swiss exporters’ top worry, replacing US tariffs, according to a January survey by Switzerland Global Enterprise. It was cited by 58% of respondents as the issue most likely to occupy them in the next 12 months.

A chorus of Swiss large-cap companies — from chocolate maker Lindt & Spruengli to food giant Nestle and logistics firm Kuehne + Nagel — have addressed the rise of the Swiss franc in recent weeks and noted the impact on the bottom line.

In January, watchmaker Swatch reported that the stronger franc cost it about 300 million francs ($380 million) in 2025. Its chief executive officer, Nick Hayek, told CH Media that the central bank needs to acknowledge the “damaging” overvaluation and use its tools in response.

The SNB’s struggle to restrain the franc dates back years and has taken many forms, from the currency cap to an extended period of negative interest rates. Now, as the franc appreciates again, it’s already resorted to rhetoric. Also in the playbook are actual franc sales, which some economists suspect are already happening, and subzero borrowing costs.

The institution’s next scheduled decision is Thursday. The main interest rate is already at zero and policymakers have said they are reluctant to go below that level again. What may further reinforce this view is that it’s yet unclear how the Iran war fallout will impact Switzerland.

Analysts say the effect of the conflict on Swiss energy prices is being limited by the stronger franc, and rates will remain on hold.

“While inflation risks are balanced for the time being, the stronger franc is weighing on Swiss exporters and the broader growth outlook,” UBS AG economists Maxime Botteron and Alessandro Bee said this week. “Sporadic foreign exchange intervention to curb rapid appreciation looks likely in a risk-off environment.”

–With assistance from Zoe Schneeweiss.

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