The Swiss franc has seen a boost attributed to its safe-haven status following US tariff announcements. However, quick appreciation might challenge the Swiss National Bank. As the US tariffs were rescinded, a further franc appreciation is no longer anticipated.
Earlier in the year, the franc showed weaker performance against the euro. The euro gained strength amid Germany’s fiscal moves, yet recent US tariff actions saw the franc strengthen, with EUR/CHF dropping from just under 0.96 to three cents lower.
Swiss National Bank Challenges
A robust franc doesn’t align well with the SNB’s concerns over inflation due to reduced import costs. Switzerland’s low inflation prompts SNB attentiveness to any changes that might increase this issue. Consequently, the franc’s strengthening poses challenges for the SNB’s goals.
Predictions for the franc suggest potential gains against the euro in coming months. The German fiscal benefit is considered overstated and unlikely to spur growth until next year. This could mean slower adjustments compared to recent franc movements, reducing the SNB’s need for currency interventions for now.
What we’ve seen lately is a direct reaction to policy decisions on both sides of the Atlantic. When the US first floated the idea of trade barriers, investors shifted into assets perceived as more stable, and the Swiss franc benefited almost immediately. It’s not uncommon for the franc to gain in such moments—its safe-haven reputation tends to draw in flows as a reflex. But once the tariff threat was lifted, those gains had less momentum. That speaks to how quickly positioning can reverse when headlines out of Washington change direction.
The earlier euro strength wasn’t about underlying economic outperformance but more so about fiscal shifts in Germany, which at the time appeared to boost confidence in the bloc’s dominant economy. Still, those gains were short-lived once risk sentiment changed. The franc then caught a bid, pushing EUR/CHF down over a fairly narrow range, but enough to matter if you’re sitting in front of a pricing screen. This sort of swift reaction is the kind of movement we watch day-to-day, knowing full well that it may not reflect long-term fundamentals but affects trade timing all the same.
Inflation Impact and Policy Response
The issue then falls at the feet of the SNB. A stronger franc seems, on the surface, like it would help keep inflation subdued—after all, imported goods get cheaper. But when inflation is already sandwiched near the bottom, any additional downside pressure complicates policymaking. There is limited room to manoeuvre if prices undershoot, and the central bank has shown it’s prepared to step in if the trend becomes one-way. That said, with price pressures still tame and no aggressive move from Frankfurt or Bern in the short term, the need for foreign exchange activity remains low.
Looking ahead, we believe euro strength may fade somewhat, particularly as the optimistic scenarios tied to German stimulus are likely baked into valuations by now. There’s also little in the near term to suggest that capital will rotate back into euro-denominated assets aggressively. This means CHF could quietly resume its upward climb if volatility returns, though the pace is unlikely to mirror the spike seen around the tariff announcement.
We do not see an urgent need to price in SNB intervention while EUR/CHF holds around the mid-0.93 area. From our angle, forward pricing remains stable, and implied volatility in the shorter tenors reflects reduced expectations for disruptive shifts. That doesn’t mean complacency is warranted—it just means the pressure is not as acute this week or next. One way to approach this is to keep positioning tilted defensively, using optionality to express views on asymmetric risk, rather than outright directional bets which rely too much on political firestorms or surprise moves out of Frankfurt.
The bigger question moving forward will be how long divergence between fundamentals and policy expectations can persist. With German economic tailwinds likely delayed and Swiss inflation still near the floor, we anticipate narrower moves in the short term but do recognise that positioning can still be pushed by external shocks. It’s not a matter of rethinking the broader trend, but rather remaining adaptable in execution and tactically leaning into pockets of opportunity when pricing dislocation arises.
