Rabobank's Senior FX Strategist Jane Foley notes that the Swiss Franc's traditional safe-haven status has been offset by the Swiss National Bank's (SNB) increased willingness to intervene against Franc strength, despite resilient Swiss economic growth and firm PMI readings [1]. Swiss CPI inflation remains subdued at 0.6% year-on-year for April, with core inflation registering a softer-than-expected 0.3% year-on-year last month [1]. As a result, there is little immediate need for SNB policy tightening [1].
At its March policy meeting, the SNB warned that inflation could rise more strongly in the coming quarters due to the ongoing war in Iran, but emphasized that its 'willingness to intervene in the FX market has increased' [1]. Since the last trading day in February, the Swiss Franc has been the third worst performing G10 currency [1].
The combination of low interest rates and the SNB's intervention stance has so far limited safe-haven inflows into the Franc, even as geopolitical risks from the Iran war persist [1]. Rabobank highlights that until there is clarity over a peace deal in the Iran war and confidence in the re-opening of the Strait of Hormuz, there remains a risk of renewed demand for safe-haven assets like the Swiss Franc [1].
CONCLUSION
The SNB's proactive intervention policy and subdued inflation have dampened the Swiss Franc's safe-haven appeal, despite ongoing geopolitical tensions. Market participants remain cautious, with potential for renewed Franc strength if geopolitical risks escalate or resolve.