Swiss Franc: Still a low-yield funding currency – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong note that the Swiss National Bank (SNB) kept rates at 0% and toned down its FX intervention language, signalling more tolerance for a firmer Swiss Franc but not a hawkish shift. With inflation staying within the SNB’s 0–2% range and policy rates expected to remain anchored, OCBC still views CHF primarily as a funding currency over the coming months.

SNB stance keeps CHF anchored

"CHF weakened after the SNB kept its policy rate unchanged at 0% and removed its earlier reference to an "increased willingness" to intervene in FX markets."

"The revised language suggests greater tolerance for a stable or stronger CHF, which may help offset inflation risks stemming from higher energy prices."

"The SNB also noted that inflation has risen mainly due to oil-related costs, while underlying medium-term inflation pressures have increased only slightly."

"That said, we do not believe this is enough to transform the CHF from a funding currency into an investment currency. Inflation remains comfortably within the SNB's 0-2% price stability range, with the central bank forecasting average inflation of just 0.8% in 2027 and 2028 while assuming policy rates remain at 0% throughout the forecast horizon."

"In our view, the SNB is unlikely to validate the market's relatively hawkish pricing. We expect rates to remain unchanged well into 2027, whereas OIS markets continue to price a meaningful probability of a rate hike as early as December."

"While risks to CHF funding remain, particularly from a sharp rebound in gold prices or a material deterioration in the European growth outlook, neither appears especially imminent. As a result, the CHF is likely to retain its role as a low-yield funding currency over the coming months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)