SNB ups the ante on franc appreciation
Indeed, traders unanimously forecast such an outcome ahead of today’s announcement. But the forcefulness of pushback on CHF appreciation did catch our eye, with twofold implications. First, the bar to raising rates now seems higher than we had previously thought. Second, the SNB is more clearly sign
A decision from the SNB to leave rates untouched at 0.0% should have surprised no one this month.
Indeed, traders unanimously forecast such an outcome ahead of today’s announcement. But the forcefulness of pushback on CHF appreciation did catch our eye, with twofold implications. First, the bar to raising rates now seems higher than we had previously thought. Second, the SNB is more clearly signalling that it will not tolerate EURCHF below 0.90, a level long assumed to be the bank’s pain point, albeit largely as a product of educated guesswork.
Combined with an erroneous headline suggesting an increased likelihood of negative rates, EURCHF has rallied sharply post-event, breaking sustainably back above 0.91 for the first time since early March.
Of course, the backdrop to this latest round of guidance cannot be overlooked. Conflict in the Middle East has pushed energy prices higher, with the franc also a beneficiary of haven demand. These facts are clearly not lost on the SNB, with Bank staff uprating 2026 inflation expectations to 0.5%, increased from 0.3% previously, albeit accompanied by a downgrade to price growth in 2027, which is now also expected to remain at just 0.5%. Most interestingly, the statement noted that: “Given the conflict in the Middle East, the SNB’s willingness to intervene in the foreign exchange market has increased. The SNB thereby counters a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland.” This is atypically strong language where the currency is concerned.
And, with EURCHF trading just above 0.90 over recent weeks, this seems to be a signal that any break lower from present levels is likely to be met with FX interventions.
Admittedly, Chair Schlegel stopped short of explicitly endorsing a level that would trigger FX interventions. Nor would he confirm whether or not the SNB has already intervened, with EURCHF having curiously rejected a break below 0.90 several times in recent weeks. As noted by Schlegel, this will be revealed in June, when quarterly data is released. Still, we now see a clear floor under EURCHF at 0.90 in the short term, with the cross biased higher further out as conflict in the Middle East winds down. That in turn warrants a softer franc in the here and now, a fact reflected in price action this morning, with EURCHF breaking back above 0.91. Granted, a dodgy headline attributed to Chair Schlegel, suggesting a lower bar to negative rates, has helped too. Still, we suspect that SNB officials will welcome the weaker franc, given today’s prevailing tone.