Swiss Franc Hovers at 2011-Highs

The Swiss franc hovered around 0.78 per USD, near its highest since July 2011, as optimism over a permanent truce between the US and Iran has diminished safe-haven demand for the greenback. Easing geopolitical concerns reduced fears of a prolonged energy and inflationary shock, while also dampening expectations of a more hawkish stance by major central banks. Meanwhile, the SNB minutes from the latest March meeting pointed to increasing uncertainty over Switzerland’s economic outlook, with global developments, particularly the Middle East conflict, seen as key inflation risks. Policymakers noted that, given heightened geopolitical tensions and safe-haven flows, the SNB is likely to remain highly willing to intervene in FX markets to curb a rapid and excessive appreciation of the franc that could undermine price stability in Switzerland.

The Swiss franc strengthened to around 0.789 per USD, the highest in over two weeks, as hopes of easing Middle East tensions following a US-Iran two-week ceasefire reduced demand for the greenback as a safe haven. Tehran also agreed to allow the safe transit of vessels through the Strait of Hormuz during this period, which alleviated concerns about energy-driven inflation. Swiss inflation surged in March to its fastest pace in a year, driven by rising heating oil costs amid the Middle East energy supply crunch. Data suggested that the dampening effect of a strong Swiss franc on import costs and inflation is being counterbalanced by higher energy prices, easing pressure on the Swiss National Bank to adjust policy.

The Swiss franc traded near 0.80 per USD, staying close to the lowest since mid-January, as investors sought the safety of US dollar amid persistent geopolitical risks after President Trump vowed more aggressive strikes on Iran. At the same time, rising domestic inflation reduced pressure on the Swiss National Bank to cut interest rates. Swiss inflation accelerated to a one-year high of 0.3% in March, from 0.1% in February, though below expectations of 0.5%, driven by higher energy prices amid the ongoing Middle East conflict. Figures suggest that the dampening effect of a strong Swiss franc on import costs and inflation is being counterbalanced by higher energy prices, providing the SNB with some flexibility. Swiss National Bank Chair Martin Schlegel and SNB member Petra Tschudin have reiterated the central bank's increased willingness to use interventions to curb the franc's strength, as reintroducing negative rates remains a high bar.