Swiss Franc: Safe-haven risks to funding role - Societe Generale

Swiss inflation remains subdued. Kit Juckes of Societe Generale sees little pressure on the SNB to raise rates, given stable fiscal and external balances. He describes the Swiss Franc as a funding currency whose gradual depreciation is punctuated by sharp rebounds during market stress. Yet he warns that sustained CHF weakness should not be taken for granted: lower oil prices and a weaker Dollar could ultimately lift the Franc against higher-yielding currencies.

Subdued inflation curbs SNB tightening pressure; CHF upside risks persist

"How can Switzerland, with a net international investment surplus totalling USD 1.22 trillion (109% of GDP), be a "funding currency"? An answer of sorts is emerging as the Swiss franc develops a pattern of gradual depreciation against both the euro and the dollar, interrupted by sharp corrections as the currency reacts to dramatic events."

“With inflation set to remain below 1% as far into the future as economists dare to look, despite real GDP growth approaching 2% this year, there is currently no pressure on the SNB to raise rates.”

“The current account surplus remains reasonably steady at around 6% of GDP, the budget is close to balance, and there is snow falling in the mountains.”

"Anyone looking for the start of a sustained CHF downtrend risks being disappointed. However, if Swiss CPI data remain as well behaved as they have been so far this year, rising from 0.1% in January to 1.0% in September, there is little pressure to tighten monetary policy in the near term."

“The biggest risk is that, when oil prices eventually fall, a weaker dollar could potentially drag the Swiss franc higher relative to some higher-yielding currencies. The timing of such a move is highly uncertain, however, and the end of the Gulf conflict would initially be a risk-supportive event that is unlikely to benefit the franc.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)