The Swiss franc’s jump has rattled financial markets, creating significant challenges for Switzerland’s economy and pushing the Swiss National Bank (SNB) toward potential intervention. With the Swiss franc’s surge reaching nearly 9% against the US dollar in April alone, both policymakers and industry leaders are raising alarms about its impact on exports, inflation targets, and broader economic stability.
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The Swiss franc’s surge and its damaging consequences
The Swiss franc’s appreciation represents the currency’s largest monthly gain since the 2008 financial crisis. Last week, the CHF’s surge pushed it to its strongest level against the dollar since January 2015, when the SNB abandoned its minimum exchange rate policy. Simultaneously, the Swiss franc’s surge against the euro has reached 2.6% this month, approaching its highest level in over a decade.
This rapid Swiss franc creates multiple economic challenges. Most critically, it threatens the SNB’s inflation target range of 0-2%, as the Swiss franc’s upswing typically depresses import costs at a time when Swiss inflation is already hovering near zero. This deflationary pressure could force the central bank to implement countermeasures to maintain price stability.
“The rise of the Swiss franc is the final ingredient for a poisonous cocktail for Swiss industry,” warned Jean-Philippe Kohl, vice director of Swissmem, Switzerland’s leading industrial association. The Swiss franc’s surge compounds existing challenges for exporters, who already face weakening global demand and the threat of substantial US tariffs potentially reaching 31%.
SNB’s expectations and measures in response to the Swiss franc’s surge
Financial analysts expect the SNB to prioritize currency interventions over interest rate adjustments to address the CHF’s surge. With the key SNB policy rate already at just 0.25% and expected to decrease further, traditional rate cuts may have limited effectiveness against the Swiss franc’s surge, particularly when driven by safe-haven flows.
“If everybody is fearful and insecurity is high, nobody cares about the interest rate in Switzerland,” explained Thomas Stucki, former head of asset management at the SNB and current Chief Investment Officer at St. Galler Kantonalbank. This assessment suggests that when markets are primarily driven by uncertainty, the Swiss franc’s momentum may continue regardless of minor interest rate adjustments.
Currency interventions to counter the CHF’s surge would represent a significant policy reversal for the SNB. In 2023, the central bank sold nearly 133 billion francs worth of foreign currencies to strengthen the Swiss franc as part of its strategy to combat inflation. By contrast, it purchased only 1.2 billion francs of foreign exchange last year. A return to large-scale franc selling to temper the Swiss franc’s surge would mark a dramatic shift in monetary policy approach.
UBS economist Maxime Botteron suggested that limited franc sales by the SNB might already be occurring to mitigate the Swiss franc’s upswing, though systematic interventions have not yet been implemented. “Interventions are more flexible than interest rate cuts – the SNB can go into the market, sell some francs to ease the appreciation, and then stop,” he noted.
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Key factors to watch amid the Swiss franc’s surge
Several critical factors will influence the SNB’s response to the Swiss franc’s jump in the coming weeks. Perhaps most important is the franc’s relationship with the euro, as the eurozone represents Switzerland’s largest trading partner.
In 2023, approximately 57% of Swiss imports were invoiced in euros, compared to just 13% in dollars, making the EUR/CHF exchange rate particularly significant for inflation dynamics amid the Swiss franc’s surge.
Political considerations also complicate the SNB’s response to the CHF’s surge. Currency interventions carry the risk of drawing accusations of manipulation from trading partners, particularly the United States.
During Trump’s previous administration in 2020, Switzerland was officially labeled a currency manipulator—a designation that could complicate bilateral relations during an already tense period of trade negotiations.
The real effective exchange rate during the Swiss franc’s rally has now reached post-2015 highs, suggesting that the SNB might be approaching what Swiss Re’s Head of Macro Strategy, Patrick Saner, called a “threshold moment” for intervention. “While political optics matter… intervention remains likely if price stability is at risk,” Saner concluded.
As global market volatility continues and trade tensions persist, the SNB must carefully navigate its response to the CHF’s surge, balancing its mandate for price stability against the external political risks of currency intervention. For Swiss exporters already facing significant headwinds, the central bank’s ability to tame the Swiss franc’s surge could prove critical to their survival in an increasingly challenging global trade environment.
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