The Swiss Franc (CHF) has underperformed in recent trading as the Swiss National Bank (SNB) actively leans against currency strength and downplays current inflation risks, according to MUFG economists cited by FXStreet. The SNB's policy focus has been on mitigating downside inflation risks associated with a stronger CHF, which has seen increased safe-haven demand following the Middle East conflict. As a result, the SNB has signaled a strong willingness to intervene in the foreign exchange market to weaken the currency, contributing to the CHF's underperformance since the onset of the conflict [1].
SNB Governor Martin Schlegel has attempted to downplay the recent rise in headline inflation, which increased to 0.6% in April from 0.3% in March, stating that there has been 'hardly any change' in medium-term price pressures. This assessment is currently supported by core inflation data, which slowed to an annual rate of 0.3% in April [1].
However, MUFG economists caution that a prolonged closure of the Strait of Hormuz and a sustained energy price shock could force the SNB to adopt a more hawkish stance. In such a scenario, the SNB may consider rate hikes and show greater tolerance for a stronger CHF to contain upside inflation risks. The Swiss rates market has already begun to price in a higher probability of an SNB rate hike by the end of this year [1].
CONCLUSION
The SNB's active intervention and dovish stance have kept the Swiss Franc under pressure despite rising inflation. However, market participants are increasingly anticipating a potential shift toward rate hikes if energy shocks persist, signaling medium-term uncertainty for CHF direction.