Swiss Franc rallies on risk appetite while SNB threatens with FX intervention
- USD/CHF extends its decline below 0.8200 nearly 1% below last week's highs.
- Hopes of fresh US-Iran negotiations have pushed Oil prices to two-week lows, boosting risk appetite.
- The SNB announced on Tuesday that they are ready to intervene in FX markets "if the need should arise."
The Swiss Franc (CHF) extended its recovery against the US Dollar (USD) on Tuesday, favoured by lower Oil prices amid hopes of a new round of US-Iran negotiations, which has prompted the Swiss National Bank (SNB) to launch an intervention warning. The USD/CHF pair has declined below 0.8200 during the European session, hitting session lows, nearly 1% below last week’s highs near 0.8270.
A higher appetite for risk is weighing on the safe-haven US Dollar on Tuesday, following news that Iran has proposed a plan to reopen the Strait of Hormuz within seven days after the US lifts its blockade on Iran’s ports, as reported by Kyodo News citing a senior Iranian government official.
This news has put additional pressure on Oil prices, pushing Brent Oil to its lowest levels in more than two weeks, at $94.20 earlier in the day, more than 10% below last week’s highs.
SNB launches an intervention threat
Against this background, the SNB warned on Tuesday that “the Middle East Conflict means that we remain prepared to intervene in the foreign market should the need arise.” The bank has not given further detail, but this move would be aimed at stemming a fast CHF appreciation, which would undermine its efforts to lift inflation.
The Swiss central bank meets on Thursday, and is widely expected to leave its benchmark interest rate at the current 0% level. SNB president Martin Schlegel observed earlier this month that inflationary pressures have increased somewhat recently, but that price pressures remain within the stability range, which practically dicar¡ds any monetary tightening, at least until well into 2027.
The US Dollar is witnessing a moderate weakness on Tuesday. The USD Index (DXY), which measures the value of the Greenback against a basket of six majors, has pulled back from nearly two-month highs at 100.67 but remains above the key 100.00 level so far.
Hopes that the meeting between US President Donald Trump and Iran's President Masoud Pezeshkian at the UN summit night will lead to a fresh round of peace talks have boosted risk appetite, encouraging investors to trim US Dollar longs and bet on riskier-considered assets. That said, the hawkish repricing of the Federal Reserve's (Fed) near-term monetary policy is keeping US Dollar downside limited so far.
SNB FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.