MUFG Bank analysts note the Swiss Franc (CHF) has underperformed other G10 currencies since the Middle East conflict began, as the Swiss National Bank (SNB) has strongly signalled a willingness to counter excessive CHF strength. With Swiss inflation starting from a very low level, they are more sensitive to appreciation. Analysts nonetheless doubts sustained CHF weakness if the energy shock intensifies.

SNB stance weighs on safe-haven CHF

"The CHF has unexpectedly underperformed since the Middle East conflict began on 28th February. It has been the third‑worst performing G10 currency after the NZD and SEK, weakening by around 3.0% against the USD. As a result, USD/CHF has climbed back toward resistance from the 200‑day moving average near 0.7950, after having reached a low just above 0.7600 earlier this year."

"One key reason for the CHF’s underperformance since the Middle East conflict began has been the SNB’s strong pushback against currency strength. The SNB acted quickly on 2nd March, issuing a statement emphasising that its “willingness to intervene in the foreign exchange market has increased” and that it stands ready to counter “a rapid and excessive appreciation of the Swiss franc.”"

"The message was reinforced at the SNB’s latest policy meeting last week, when the Bank again stated: “Given the conflict in the Middle East, the SNB’s willingness to intervene in the foreign exchange market has increased. The SNB thereby counters a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland.”"

"The SNB is likely to be more sensitive to a stronger CHF than during the last energy price/inflation shock in 2022. The starting point for inflation in Switzerland prior to the Middle East conflict was much lower at 0.1% in February compared to prior to the Ukraine conflict in February 2022 when it was at 2.2%."

"While the CHF has weakened since the Middle East conflict began, we remain unconvinced that this recent trend will persist. If the energy‑price shock intensifies and results in a more disruptive outcome for the global economy, initial CHF weakness is likely to reverse."

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