Swiss Franc Strength No Longer a SNB Priority

Above: File image of Thomas Jordan (centre). Image © SNB / D. Büttner.

The Swiss National Bank (SNB) no longer sees maintaining Swiss Franc strength as a top priority, suggesting 2023's top-performing currency can't depend on vigorous support from its central bank in 2024.

The Franc edged lower after SNB kept rates unchanged at 1.75%, as expected, leaving markets to focus on Governor Jordan's guidance.

Jordan said the SNB is "no longer focusing on foreign currency sales", while the SNB removed from official guidance that it continues to intervene in favour of CHF appreciation.

"Most of the attention was on the SNB's view on the Swiss franc," says Simon Harvey, Head of FX Analysis at Monex Europe. Harvey says all signs point to the central bank now being cautious of notable currency appreciation.

The SNB also issued growth forecasts for the first time, revealing the SNB sees the economy slowing from a current rate of 1% to 0.5-1% next year.

It now sees inflation averaging below its 2% ceiling a year earlier than it did a quarter ago, suggesting a deflationary outlook.

In short, the services of a stronger Franc are no longer required. Unsurprisingly, perhaps, CHF is the worst-performing G10 currency on the day next to the USD:

The Pound to Franc exchange rate is up by a third of a per cent at 1.1034 at the time of writing, the Euro to Franc is higher by 0.23% at 0.9501, and the Dollar to Franc conversion is flat at 0.8715.

The SNB has nurtured a stronger Franc in 2024 by actively selling foreign exchange, noting that a strong exchange rate cushions against imported inflation, thereby proving itself as a useful strategy in bringing inflation back to the 2.0% target.

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"The SNB has been buying Swiss francs to reinforce its appreciation, which has had the effect of reducing imported inflation but has also worsened the competitiveness of domestic exporters," says Charlotte de Montpellier, Senior Economist for France and Switzerland at ING Bank.

In March, the SNB introduced language that said it actively intervenes in favour of CHF appreciation, but this language has now been removed.

"Further franc appreciation against the euro amidst a weaker external growth and inflation environment posed a recession and deflation risk in Switzerland," says Harvey.

"Today’s SNB decision suggests that the central bank is sensitive to the prospect of EURCHF nosediving below the 0.94 handle on a more dovish ECB or increased recession risks in the eurozone," he adds.

Monex says we are now entering an environment where two-sided FX intervention on the CHF is a risk for markets, a dynamic that should keep EURCHF supported around 0.95.

"Furthermore, given the SNB’s updated inflation forecasts, which now have inflation averaging 1.9% next year and 1.6% in the following year, we think it is only a matter of time until rate cuts come into scope for the central bank," says Harvey.

This could put 2023's top-performing currency on the back foot in 2024.

"The SNB confirmed today that it is no longer focusing on FX sales," says Chris Turner, head of FX research at ING. "EUR/CHF can remain stable near 0.95/0.96 next year."