By Saikat Chatterjee and John Revill

LONDON / ZURICH, October 27 (Reuters)The Swiss franc, at 11-month highs against the euro, is expected to continue to advance thanks to rising inflation, positioning of hedge funds against market turbulence and, most importantly, a central bank that has become a big deal. more tolerant of currency strength.

This increase comes at an opportune time, just as the US Treasury is preparing to release its report on the monetary policies of trading partners. Its April report considered Switzerland to qualify as a currency manipulator, although it did not label it as such.

Since then, the Swiss National Bank has sharply reduced its interventions to put the brakes on the franc, even though it remains 4.6% firmer than the 18-month lows reached in early 2021 against the euro. EURCHF = EBS.

Against the dollar, it is near six-week highs, having strengthened 3% since early April.

Stephen Gallo, head of European currency strategy at BMO, says many speculators are staying “long” on the Swiss franc against the dollar and the euro “because they fear there is some kind of surge. of the markets and, therefore, they buy upside exposure to the Swiss franc. “

But while the franc, alongside other safe haven assets such as gold and the yen, is being watched as a barometer of the mood of global markets, most analysts believe the strength of the franc is no longer just due to security research flows. []

Below are five graphs showing what drives CHF earnings:


Despite the 2.6% rise in the franc against the euro since mid-September, the SNB has largely avoided intervention, recently intervening for the first time in six weeks.

Thomas Stucki, director of investments at St Galler Kantonalbank and former head of asset management at the SNB, believes that policymakers will maintain their hands-off approach.

One reason is that expectations of higher interest rates from other central banks, such as the Fed and the Bank of England, may limit the upward pressure on the franc.

“The level of the franc is currently not a problem for the SNB and although the franc is strong, we have no deflationary pressure,” he said.

Swiss inflation reached its highest level in two years in September at 0.94%.


Bets on the franc’s appreciation are also being fueled by hopes that higher inflation could cause the SNB’s interest rates to rise, said GianLuigi Mandruzatto, economist at EFG Bank.

Unlike peers such as the European Central Bank and the Fed, the SNB has not changed its policy framework to introduce a higher inflation tolerance threshold. This implies that it would be need of act if inflation accelerates above its price stability target – defined as just below 2%.

Money markets anticipate a rate hike of 15 basis points from the SNB by the end of 2022, more than expected from the ECB. At -0.75%, Swiss rates are the lowest in the world.

“By the middle to the end of 2025, markets expect the current differential to reverse, with interest rates 40 basis points higher in Switzerland than in the euro area,” said Mandruzatto.

“This 65 basis point differential is huge in a world where interest rates are 0.01%. People will buy the franc now to take advantage of this trend in the future.”


Against the currencies of trading partners, the franc does not seem as overvalued as it used to be compared to long-term averages.

ING strategists believe that even if Switzerland ticks the boxes to be designated as a currency manipulator by the Treasury, it can again avoid being labeled as such.

The criteria include a trade and current surplus against the United States and intervention in the foreign exchange markets. Switzerland has a current account surplus of $ 11.5 billion with the United States in the June quarter, down slightly from March.


Currency derivatives markets show little evidence that traders are betting big on a fall in the franc.

Implied volatility gauges on the Euro-Franc are low and a few strikes scattered around the 1.02 to 1.05 Franc per Euro level indicate that traders expect more gains for the Franc. Strikes are levels around which traders place big bets in case the exchange rate hits that level. On Wednesday, the exchange rate was 1.0628 francs to one euro.

Comparatively, hedge funds had large short bets in the futures markets, suggesting that any further gain in the franc may force some of these positions to unwind, resulting in more gains for the franc.

SNB interventionhttps://tmsnrt.rs/30WNV7Q

CHF positioninghttps://tmsnrt.rs/3jHaPqr

Interest rate in CHFhttps://tmsnrt.rs/3vRPr6U

Valuations in CHFhttps://tmsnrt.rs/2ZrtfUI

Swiss surplushttps://tmsnrt.rs/3jGTWMK

(Reporting by Saikat Chatterjee in London and John Revill in Zurich; Additional reporting by Elizabeth Howcroft in London; Editing by Sujata Rao and Shailesh Kuber)

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