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

Subdued Swiss inflation and stable fiscal and external balances leave the SNB under little pressure to raise rates, according to Societe Generale’s Kit Juckes. He describes the Swiss franc’s funding-currency pattern as a gradual decline punctuated by sharp recoveries when markets come under stress. Even so, he warns that expectations of prolonged CHF weakness may prove misplaced: lower oil prices and a weaker dollar could ultimately lift the franc against higher-yielding currencies.

Subdued inflation curbs SNB tightening pressure while CHF retains upside potential

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"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.)