USD/CHF: Limited SNB tools to downside – Commerzbank

Commerzbank’s Michael Pfister argues the Swiss National Bank (SNB) has few sustainable tools to weaken the Swiss Franc (CHF) against major currencies such as the US Dollar (USD). Large-scale FX interventions like those before 2024 are seen as unlikely due to balance-sheet risks and political constraints, leaving the long-run bias toward a structurally stronger Swiss Franc despite near-term relief.

SNB constrained on lasting CHF weakness

"The SNB's verbal interventions and its apparently swifter response do nothing to address a fundamental problem: the central bank has limited options for weakening the franc in the long term."

"In order to influence the franc's long-term direction, the SNB would need to carry out interventions on a scale similar to that seen prior to 2024 . In other words, rather than interventions amounting to a few billion CHF, sums in the region of 50 billion CHF would likely be required."

"The SNB shies away from such amounts for good reason. On the one hand, larger foreign exchange reserves also entail foreign currency risks. In the current environment, it is questionable whether the SNB would want to increase its exposure to USD on its balance sheet."

"Moreover, the trade deal with the US is fragile, and significant interventions to weaken the franc would likely anger the US president. Needless to say, the SNB would never admit to reconsidering its intervention strategy because of the US president."

"But an escalation in the trade conflict would also have significant implications for the real economy, which the SNB probably does not want."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)