Swiss Franc Soars to Decade Highs, Pressuring SNB Amid Resurgent Safe-Haven Demand

Early this week, a surge of risk-averse sentiment buoyed the Swiss Franc, offsetting the potential impacts of further rate cuts and sparking calls for the Swiss National Bank (SNB) to take additional steps to cool the currency's rise.

The Swiss Franc strengthened to near-decade highs against the Euro on Monday, following its best performance since early 2022 the previous week. On Wednesday, Switzerland's largest manufacturing lobby urged the SNB to quickly intervene to prevent a strong Franc from hurting exporters and endangering economic recovery.

Concerns about a U.S. recession, heightened geopolitical tensions, and significant market volatility in Japan have combined to renew the Franc's appeal as a safe-haven asset. Despite the SNB's seemingly inevitable third consecutive rate cut in September, long-term investors and speculative funds remain undeterred.

Investors who had borrowed Swiss Francs to sell them and buy higher-yielding currencies are unwinding those bets as the Franc's safe-haven allure grows. It's yet to be seen if the SNB will need to adopt more aggressive measures to curb the currency's strength.

So far, data indicates that the Franc's rise hasn't slowed inflation in a way that might hamper the economy, according to Geoff Yu, Senior Strategist at BNY Mellon. A major intervention in the currency markets seems unlikely.

Even though the Franc has appreciated around 5% since May, BNY Mellon's clients continue to hold underweight positions in the currency. Yu noted that the path of least resistance points to further gains.