The figures published yesterday morning on the Swiss National Bank’s (SNB) foreign exchange market operations in the second quarter confirmed what the statements made at the last press conference had already indicated, Commerzbank’s FX analyst Michael Pfister notes.

SNB reluctant to take action against the strong franc

“For the time being, the SNB appears to be continuing to rely mainly on the key interest rate as its preferred instrument, with interventions even lower than the already quite low level in the first quarter. And this is despite the fact that, in the first quarter, one might have assumed that the SNB was slow to switch to foreign currency purchases, i.e. that it was first buying CHF and then selling CHF later in the quarter,

The Swiss National Bank’s third interest rate cut did not push USD/CHF out of its month-long range between 0.84 and 0.8550, DBS’ FX analyst Philip Wee notes.

SNB does not want EUR/CHF to find new lows

“SNB lowered the policy rate by 25 bps to 1.00% and kept the door open for more easing in the coming quarters on its new forecast for inflation to decelerate to 0.6% in 2025 from 1.2% in 2024.”

“In June, SNB projected a modest slowdown in inflation to 1.1% from 1.3% based on its assumption of a stable 1.25% policy rate over the forecast horizon.” 

“SNB signalled its readiness to intervene in currency markets, reinforcing its concerns about the CHF’s strength as a source of significant disinflation and pressure for Swiss industries amid weak

It looks like G10 policy rates (ex-Japan) are going lower, ING’s FX analysts Francesco Pesole and Chris Turner note.

EUR/CHF may struggle to stay above 0.95

“We are looking for at least another 125bp of ECB easing into next summer, if not 175bp. Switzerland is closer to the zero-bound constraint, however, and markets are reluctant to price the Swiss National Bank policy rate below 0.50% – just 75bp lower from current levels. Spread compression could therefore weigh on EUR/CHF into 2025.”

“We also think the SNB pays close attention to the real CHF. At the end of July, it was still some 4% off the highest levels seen in January 2024 and suggests the SNB may not emerge with strong verbal intervention until EUR/CHF is closer to the 0.91 area.”

Even as speculative unwinds look largely done, rising geopolitical tensions in the Middle East and Russia should be watched as it could bolster safe haven demand for CHF and JPY, DBS FX & Credit Strategist Chang Wei Liang notes.

SNB introduces a floor for EUR/CHF

“Egypt’s aviation ministry instructed all airlines to avoid Iran airspace due to military drills, while Ukraine staged a surprise military incursion into Russia. We are cautious that further strength in CHF could trigger an unexpected policy reaction.” 

“Unlike the undervalued JPY, CHF is highly overvalued. Recent CHF gains have extended its overvaluation towards the Aug 2011 record high based on our DEER model, which subsequently prompted SNB to introduce a floor for EUR/CHF.”