Swiss franc hits highs against euro and dollar
The Swiss franc is once again living up to its name as a safe haven. The reason for this is US President Donald Trump's erratic tariff and economic policy, which is forcing investors out of the dollar and into the franc.
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On Friday morning, the US dollar still cost CHF0.8203, more than CHF0.03 less than 24 hours earlier. In the night to Friday, the exchange rate had even fallen to 0.8141, a record low. Since then, the two currencies have recovered only slightly. In the same period, the Swiss franc has gained around CHF0.01 against the euro to 0.9273.
Meanwhile, the euro/dollar currency pair is valued at 1.1302 after 1.1216 the previous evening and 1.0991 on Thursday morning. In the night to Friday, the euro even rose to $1.1383, its highest level in just over two years.
The reason for the franc’s strength is the uncertainty among investors due to the unpredictability of the US president. This is causing investors to pull their money out of the dollar, said one trader.
In addition to the weakness of the dollar, the significant rise in the yield on ten-year US government bonds was also evidence of this. And this trend could continue, as the trade war is likely to continue, according to the market. Trump’s erratic and aggressive behaviour has destroyed a lot of confidence, it said.
+ Swiss population has negative view of Trump
Currency market interventions to ’emergency interest rate cuts’
Meanwhile, the strength of the Swiss franc has economists pondering measures to be taken by the Swiss National Bank (SNB). “An interest rate cut by the SNB in June could become necessary if the Swiss franc does not weaken from its current level”, according to a new study by UBS.
The SNB did not want to comment on possible measures due to the strength of the franc when asked by AWP.
The experts at the major bank UBS continue to believe that a de-escalation in the trade dispute is likely. And in such a scenario, according to their forecasts, the EUR/CHF exchange rate would rise back to 0.95 by June, which would reduce the need to cut interest rates.
+ Trump tariff shock: how Switzerland is positioning itself
Various options for SNB
Nevertheless, the UBS economists list the SNB’s other options in their study.
According to the study, the SNB could counteract the upward pressure on the currency by intervening in the foreign exchange market. “However, such interventions harbour the risk of exacerbating trade conflicts with the US if they are perceived as currency manipulation,” the experts say.
The most drastic instrument would be an “emergency interest rate cut”. However, according to the authors of the study, this should only be considered “if the SNB believes that the outlook for inflation and growth has deteriorated significantly”.
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Translated from German by DeepL/ts
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