Investing.com — The Swiss Franc has racked up gains against the euro as investors seek refuge in the safe-haven currency amid fresh political uncertainty in the Eurozone, but could the risk that a stronger Franc poses Switzerland’s export-dominated economy force the Swiss National Bank into a more aggressive rate-cut stance?
“The return of EZ political uncertainty has once again focussed markets on CHF as consummate hedging strategy,” Bank of America analysts noted in a recent report.
As the Eurozone is Switzerland’s largest trading partner, an overly strong CHF relative to the tends to concern the SNB.
But fresh political uncertainty in the Eurozone, courtesy of France – following moves from the left and far-right parties in the country to oust current Prime Minister Michel Barnier after he forced through budget cuts – hasn’t caused a meaningful enough jump in CHF against its G10 currency peers to trouble the SNB.
“For the SNB, the key warning sign is whether CHF has significantly outperformed its G10 peers. This is not borne out by the evidence,” the analysts said.
The grind lower in is more likely driven by short CHF positioning rather than safe-haven flows. December seasonals are biased towards a weaker EUR/CHF, having fallen in seven out of the past 10 month.
Safe-haven flows and sight deposits, which the SNB uses as a tool for currency intervention, both appear to “be lacking for now,” the analysts said, suggesting that there isn’t much sign that the Swiss central bank is eager to intervene.
While the CHF is likely to remain in focus as refuge against Eurozone political uncertainty,
the analysts said they continue to see value in bearish CHF positions on crosses, where policy divergence is clearer, such as GBP and USD.
