Swiss Franc "to push higher vs EUR and USD" says Leading Swiss Private Bank

- SNB to step up defence at 1.05 EUR/CHF
- CHF continues trend of appreciation
- SNB keen to leave small intervention footprint

Franc ticker

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The Swiss Franc is forecast to extend higher against the Euro and U.S. Dollar by analysts at private Swiss bank J. Safra Sarasin who have this week announced they are updating their Franc forecasts.

Central to the thesis that the Franc can rally further is that the Swiss National Bank (SNB) will prove more hesitant to push back against CHF strength going forward now that the US Treasury have announced they are monitoring Switzerland for currency manipulation.

"Switzerland’s reintroduction to the US Treasury’s monitoring list of currency manipulators and the Trump administration’s latest threat to punish offenders means that the SNB will probably allow the Swiss franc (CHF) to appreciate further," says Dr. Claudio Wewel, FX Strategist at J. Safra Sarasin Asset Management.

The Swiss Franc has been one of the better performing currencies of 2020, advancing against all major currencies apart from the U.S. Dollar. The Pound-to-Euro exchange rate is down 1.62% in 2020 at 1.2630 and the Euro-to-Franc exchange rate is down 1.5% in 2020 at 1.0699.

The EUR/CHF exchange rate is particularly important to the Swiss authorities given the sizeable trade the country does with the Eurozone. It has long been thought that the SNB prefer to engage in currency market activities to ensure EUR/CHF stays above 1.08, thereby ensuring Swiss exports remain competitive.

There is a growing sense that now the SNB are not likely to be too aggressive the rate will continue to slip.

That is not to say the SNB are completely out of the market, research from Bank of America (BofA) shows there have been signs of life from the SNB as sight deposits suggest intervention in CHF.

"Weekly SNB sight deposit data suggests SNB has reacted to the persistent decline in EUR/CHF and stepped up its intervention activities. However, the tracking data suggests a reluctance to leave a large footprint on markets," says BofA strategist Kamal Sharma. "Overall amounts remain small."

The Franc has appreciated largely on the back of the market's desire for currencies with safe-haven qualities amidst the U.S.-Iran tensions seen at the start of the year and more recently the coronavirus outbreak in China.

"Recent market turbulence around the US-Iran crisis and the coronavirus epidemic reinforced flows into safe haven currencies and assets," says Wewel.

Pound franc

Above: GBP/CHF has been trending lower in the face of persistent Franc strength

The market has this week been showing a more sanguine approach to the coronavirus, judging that rate of infection had been tapering off. However on Friday there does appear a more sober approach with some economists warning that there will be sizeable impacts to global growth from the outbreak.

It would appear that the market will remain cautious of the coronavirus threat going forward, which should bode for further CHF upside.

Another development this week that will only further encourage the SNB to stand aside and let the CHF strengthen was the U.S. Department of Commerce decision to introduction a rule that would impose duties on products from countries that it deems to undervalue their currencies versus the USD.

Though experts doubt the draft’s compatibility with WTO rules, Wewel notes SNB President Jordan was quick to deny that the SNB manipulates its exchange rate in an interview with the German newspaper FAZ.

"On the same page, Jordan stated that the SNB remains prepared to counter excessive CHF appreciation with FX interventions. Yet, increased scrutiny may induce the SNB to allow more CHF appreciation while our hunch is that forceful interventions are likely once EURCHF drops below 1.05," adds Wewel.

J. Safra Sarasin expect EUR/CHF to appreciate to 1.05 and USD/CHF to 0.91 (previously 1.08 and 0.94) towards year-end.

Other forecasts are unchanged with the GBP/CHF forecast to end the year at 1.2283.