Basic Forecast for Swiss Franc: Neutral
- The Swiss franc is probably the most attractive safe -haven currency after the Swiss National Bank’s first rate hike in 15 years.
- Concerns over the Eurozone debt crisis raised may continue to increase inflows into the Swiss Franc through the EUR/CHF rate.
- According to the IG Customer Sentiment Indexyang Swiss Franc have a price increase biased.
Swiss Franc Week in Review
The Swiss Franc was the best -performing major currency last week, earning a place against each of its major counterparts after the Swiss National Bank surprised market participants with their first rate hike in 15 years. The rate hike, from -0.75% to -0.25%, marks the first step in the SNB’s key rates since 2015.
With risk appetite eroding once again amid growing concerns of a global recession, the Swiss Franc posted the strongest performance against commodity currencies: The AUD/CHF rate declined by -3.22%; The CAD/CHF rate plunged along with oil prices, down -3.61%; and the NZD/CHF rate fell by -2.42%. The CHF/JPY rate also performed well, as the difference between the SNB and the Bank of Japan widened: the pair added +2.23%. Rounding out the key subjects, the EUR/CHF rate declined by -2.01%, the GBP/CHF rate lost -2.57%and the USD/CHF rate declined back -1.80%, despite the Federal Reserve’s 75 -bps rate increase for the first time since 1994.
The Lighter Swiss Economic Calendar
After a surprise rate hike by the SNB, the economic calendar is significantly bright in the coming days for the Swiss Franc. In fact, there are only two events in the Swiss economic calendar in the coming weeks, leaving the Swiss Franc following a broader risk trend as well as news streams on concerns about the resurgent Eurozone debt crisis.
- On Tuesday, May the Swiss trade balance figure will be paid at 6 GMT.
- On Thursday, Swiss 1S’22 current account data will be released at 7 GMT.
For full Swiss economy data forecast, see DailyFX economic calendar.
Swiss Government Bond Yield Curve (1 year to 30 years) (June 2020 to June 2022) (Chart 1)
The sharp rise in Swiss inflationary pressures in recent months – now at +2.9% y/y in May, exceeding the SNB’s objective of 0 to +2% – has had a side effect on Swiss government bond yields. With the SNB responding in turn, Swiss government bond yields are now at their highest level since 2014.
While still relatively low compared to other major economies, an increase in Swiss yields should increase the relative attractiveness of the Swiss Franc against other safe -haven currencies such as the Japanese Yen moving forward. Moreover, an increase in Swiss yields could help strengthen the Franc as the echoes of the Eurozone debt crisis intensify – so strong that the European Central Bank had to hold an emergency meeting last Wednesday, less than a week after their June policy meeting.
CFTC COT Swiss Franc Futures (June 2020 to June 2022) (Chart 2)
Finally, look at the position, according to the CFTC COT for the week ended May 24, speculator lowered their net short Swiss Franc position to 6,488 contrak of 15,850 contracts. Keep in mind that the position reporting period ends two days before the SNB rate decision; a further decline in net shorts is expected to move forward.
— Written by Christopher Vecchio, CFA, Senior Strategist