Swiss Franc Forecast to See Another Bout of Weakness

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Analysts at Swiss private bank J. Safra Sarasin say the Swiss Franc is due another bout of weakness.

The call comes following a period of recovery by the currency, which is the second-worst performer of 2024 thanks to the Swiss National Bank’s decision to cut interest rates well ahead of its peer central banks.

“In spite of the Swiss franc’s recent recovery, we think that a near-term dip is likely as the SNB’s market-implied rate cut trajectory looks too shallow,” says Dr. Claudio Wewel, FX Strategist at J. Safra Sarasin.

The market has recently lowered its expectations for further interest rate cuts at the SNB following a run of better-than-expected Swiss data (less by way of cuts = a shallow rate cut trajectory).

SNB President Jordan helped the CHF’s cause on May 30 by hinting that recent depreciation was being monitored, leading investors to speculate over whether the central bank might intervene in the currency market to support it.

But J. Safra Sarasin thinks weak economic data and inflation that will come within the SNB’s target range argue for a second rate cut in June.

Turning to medium-term timeframes, Wewel says the Swiss franc should benefit from a further retracement in global yields once central banks shift towards monetary easing, diminishing the Swiss yield disadvantage.

Regarding SNB intervention, J. Safra Sarasin thinks the SNB should continue to monitor the Swiss franc’s broader dynamics and intervene only if currency dynamics are excessive, which is not believed to be pressing right now.

Longer-term, analysts think the Swiss franc can appreciate, given its relative structural advantages, along with high current account surpluses and a strong net international investment position.

J. Safra Sarasin forecasts the Pound to Franc exchange rate to be at 1.14 by the end of September, 1.10 by the end of 2024 and 1.07 by mid-year 2025.

The Euro to Franc exchange rate is forecast at 0.98, 0.95 and 0.94 for these points in time, with the Dollar to Franc at 0.89, 0.86 and 0.85.