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CHF: Is the Swissie’s safe haven status still valid as global recession looms?

By Adrian Holliday

12:18, 2 September 2022

Swiss flag flying in Switzerland's capital city
Switzerland's national flag in Bern – Photo: Getty

Nothing tests Swiss neutrality like war in Europe. The currency of Europe’s alpine nation has been in an extended face-off with USD as the Russia-Ukraine conflict has ground on through 2022. 

Easy tightening

Behind some push-pull USD/CHF pressure lies low unemployment giving the Swiss National Bank the needed rope to sustain further interest rate hikes. 

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Is the Swiss franc's 'safe haven' status still credible – truth or myth?  

The SNB unexpectedly hiked rates by 50 basis points in July and looks set to repeat this on 22 September, hauling the policy rate into positive territory for the first time since mid 2011.

Synching status? 

Almost all global monetary policy, bar Japan, is experiencing a re-fit from the ground up – competitive currency appreciation, almost. Against this does CHF’s vaunted ‘safe haven’ status still stand? Or is it just more ‘fluid’?

CHF has strengthened as the health of eurozone near neighbours have weakened, rocked by soaring energy prices and war. But while the Swiss National Bank gets more comfortable with a stronger currency, the SNB’s new-found tolerance has its limits thinks Enrique Díaz-Álvarez from Ebury FX Risk Management. 

“SNB sight deposits [which can be drawn quickly] have continued to increase throughout August thus far, indicating to us that policymakers are keen to put a floor under the EUR/CHF exchange rate at current levels.”

Pandemic, war, recession 

But USD, supercharged by the all-out willingness of the Federal Reserve to gun inflation down, is something else. Both EUR and CHF, in relative terms, strengthened up to the 2007 financial crisis though CHF continued to build, remaining near parity with USD while the euro steadily weakened. 

Stéphane Monier, chief investment officer at Lombard Odier Private Bank thinks EUR/CHF will be trading at around 0.93 euros and 0.95 USD/CHF in a year’s time.

“The central bank’s policy change to consider selling the EUR/CHF may further increase our positive outlook for the Swiss currency Monier thinks.

Plotting the USD/CHF trajectory against such volatility is fraught. The US remains an energy and food superpower with a strong consumer economy and its reserve currency status could even strengthen long term.

USD/JPY

157.52 Price
+0.080% 1D Chg, %
Long position overnight fee 0.0108%
Short position overnight fee -0.0190%
Overnight fee time 21:00 (UTC)
Spread 0.040

AUD/USD

0.67 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00030

AUD/USD_zero

0.67 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00030

EUR/USD

1.09 Price
-0.100% 1D Chg, %
Long position overnight fee -0.0087%
Short position overnight fee 0.0005%
Overnight fee time 21:00 (UTC)
Spread 0.00018

'Safe haven' flip side

Given the vulnerable nature of the eurozone economy, particularly with regard to the Russia-Ukraine conflict, the eurozone risks look skewed towards further downside – apparently CHF-supportive. But it is the supercharged USD that, more than anything, is ensuring CHF now looks a pale imitation of its former self. 

Trading with its immediate neighbours but without having to support their debts brings other CHF challenges – the downside to ‘safe haven’, especially when a crisis hits and demand surges. 

Russia no longer considers Switzerland a ‘neutral country’. John Kicklighter, chief strategist at DailyFX says the further the euro region falls into duress, the more likely the need for fiscal support will climb, which will apply pressure on the coffers of governments.

Future lows?

Capital will want to avoid underperformance of local markets, he told Capital.com, "and local assets will be acutely aware of the possibility of further tax harvesting into the future".

This, "is no doubt confounding the SNB who has maintained a monetary policy approach of essentially keeping rates at a discount to the ECB. When the European Central Bank finally starts to raise rates to fight inflation, a cross fundamental wind sweeps in to drive EUR/CHF to record lows..."

Meanwhile markets remember Switzerland’s dramatic measures more than a decade ago to fight an appreciating franc.

Looking ahead – can consumer confidence hold up?

  • The Swiss consumer confidence index fell to -41.7 in the third quarter of 2022, the lowest level since the second quarter of 2020 says Capital.com FX strategist Piero Cingari. 
  • “The most recent reading of inflation (3.5%) was well above the Swiss National Bank’s 0-2% target range, marking the largest increase in consumer prices since August 1993,” Cingaro adds.
  • The Swiss National Bank holds its next meeting on 22 September, the same day as the FOMC and two weeks after the ECB meeting,
  • “I expect,” says Cingari, “a move of at least 50 basis points, which will push Swiss interest rates into positive territory, for the first time in a decade. There might be a risk of seeing a 75-basis-point move to counteract what the Fed and the ECB are going to announce,” he adds.

Switzerland sees the initial release of second-quarter GDP numbers on Monday. A further deterioration of the gas crisis and the Italian elections are also short-term risks that could put more pressure on the euro-franc (EUR/CHF), adds Cingari. 

Early afternoon the dollar index (DXY) was 0.53% down at 109.087 while sterling (GBP/USD) was 0.03% lower at 1.1544 while the euro (EUR/USD) had lifted 0.63% to 1.0009.

Markets in this article

USD/CHF
USD/CHF
0.88910 USD
0.0012 +0.140%
EUR/CHF
EUR/CHF
0.96775 USD
0.00019 +0.020%
DXY
US Dollar Index
103.945 USD
0.135 +0.130%
EUR/USD
EUR/USD
1.08860 USD
-0.00114 -0.100%
GBP/USD
GBP/USD
1.29209 USD
-0.0038 -0.290%

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You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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