Swiss Franc Gains Against Euro

The Swiss Franc (CHF) has strengthened against the euro amid Eurozone political uncertainty, prompting investors to seek refuge in this safe-haven currency. However, concerns arise that a stronger CHF might pressure Switzerland's export-driven economy, potentially leading the Swiss National Bank (SNB) to adopt a more aggressive rate-cutting approach.

According to analysts at Bank of America, the resurgence of political uncertainty in the Eurozone focuses market attention on CHF as a hedging strategy. As Switzerland’s largest trading partner, an excessively strong CHF against the euro typically raises alarms for the SNB.

Recent political movements in France, particularly from left and far-right parties aiming to oust Prime Minister Michel Barnier over imposed budget cuts, have not resulted in a substantial increase in the CHF's value against its G10 peers. Analysts emphasize that the SNB remains alert to significant outperformance of the CHF compared to these peers, but current data do not suggest imminent concern.

Moreover, the recent decline in EUR/CHF appears more influenced by short CHF positioning than by traditional safe-haven flows. Seasonal trends indicate a predisposition towards a weaker EUR/CHF, with declines observed in seven out of the past ten months.

The report notes that safe-haven flows and sight deposits, tools for intervention used by the SNB, seem to be absent at this time, indicating limited motivation for the central bank to intervene.

Despite the ongoing focus on the CHF as a haven against political uncertainty in the Eurozone, analysts recommend pursuing bearish CHF positions against clearer policy divergences, such as those with GBP and USD.