Calling time on Swissy
Switzerland’s Franc may be destined to faulter under its own weight. Despite rock bottom interest rates, the Swiss Franc has been a significant beneficiary of the post-Covid and Trump2 world. EURCHF, a key barometer of European risk, shows some 20-cents worth of Swiss rally post-Covid. The pair has dropped from well over 1.10 in early 2021 to today’s market where Swiss buyers find little over 0.9 CHF being purchased per Euro sold. Against the ailing Dollar, CHF’s advance has been even more obvious recently. Having pushed close to parity by late 2022, buying a Dollar today requires barely more than 80 Swiss cent
However, the Franc could soon see a reversal in its fortunes. The Swiss economy is struggling under the weight of the Franc, with the currency’s value having material impacts on economic growth prospects. Part of the reason for the ascent of the Franc was the inability to conduct FX intervention due to the threat of US tariffs. Despite initially heeding the US administration’s warning not to conduct FX intervention, tariffs on Swiss exports to the US still attract on average a 25% levy. With tariffs back in focus, there is the risk for that level to double, creating mounting risks to the Swiss economy.
Talks of the TACO trade are now remerging as the latest US-China trade escalation takes a breather. However, risks remain material to the Franc. In Q2, Switzerland was forced to resume FX purchases to its highest level since 2022, some 5bn CHF. This will no doubt encourage the US administration as it considers changing the tariff landscape on pharmaceuticals. Forwards in EURCHF and USDCHF are still, of course, deeply negative which may serve to further encourage positioning to build in favour of a short CHF position.
Discussion and Analysis by Charles Porter
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