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Swiss Franc Edges Toward Decade High as SNB Resists Intervention - REUTERS
(Bloomberg) -- The Swiss franc may reach the strongest level in almost a decade as the nation’s central bank cuts interest rates more gradually than peers and refrains from intervening to weaken the currency, according to JPMorgan Chase & Co. and Bank of New York Mellon.
The banks’ strategists see the franc revisiting levels last seen in 2015 later this year — between 0.92 and 0.90 per euro — in the absence of a bolder rate cut from the Swiss National Bank or significant intervention. That compares with a median forecast of 0.95 from analysts surveyed by Bloomberg.
The franc has outperformed peers on the view that the SNB will lower rates by about 60 basis points through mid-2025, much less than the 150 basis points expected from the European Central Bank. It also got a boost in past months from the dismantling of popular carry trades, in which investors borrow in currencies where rates are low and park the proceeds in higher-yielding assets.
“The SNB’s preference is to continue lowering the policy rate before resorting to substantial FX purchase intervention,” said Meera Chandan, co-head of global FX strategy at JPMorgan, who sees the franc at 0.90 per euro by the end of the year.
The franc’s advance is making the country’s exports pricier while lowering the cost of imports at a time when inflation is already well within the SNB’s target — and near a three-year low. Swiss exporters have urged the SNB to “act quickly” to stem the franc’s rise, saying the currency’s gains threaten a recovery in overseas sales.
After delivering its third rate cut this year on Thursday, bringing the benchmark to 1%, the SNB warned that it could reduce rates more to choke off currency strength. For Geoff Yu, senior strategist at BNY, it would only make sense for officials to directly sell the franc once they have cut rates to zero.
“Otherwise it’s wasting bullets,” said Yu, who sees the franc gaining to 0.92 per euro this year, largely due to weakness in the common currency.
In the meantime, the SNB will likely resort to talking down the currency, though strategists say verbal interventions won’t be enough to break the franc’s long-term strengthening trend.
“The impact of jawboning a currency lower tends to wear off unless actual intervention takes place,” said Jane Foley, head of FX strategy at Rabobank. “So there may be a game of cat and mouse between the SNB and the market in the weeks ahead.”
