The Swiss Franc (CHF) has historically been viewed as a safe-haven currency. This status led to a significant appreciation during the financial crisis against various currencies, particularly the Euro (EUR). The Swiss National Bank (SNB) considered this appreciation against the Euro to be excessively strong. Consequently, on September 6, 2011, the SNB established a minimum exchange rate of 1.20 CHF per EUR. Simultaneously, they declared their readiness to defend this floor by purchasing foreign currency assets without limit. This intervention resulted in a substantial expansion of the SNB’s balance sheet.
However, in a surprising move on January 15, 2015, the SNB announced the discontinuation of the minimum exchange rate policy. The EUR/CHF exchange rate plummeted rapidly to around parity. Shortly after, the SNB introduced negative interest rates. In the following years, attempts to push the EUR/CHF rate back above 1.20 proved unsuccessful. Instead, from 2018 onwards, the rate trended downwards. By mid-2022, parity with the Euro was breached, partly due to the less severe Covid-19 lockdowns in Switzerland, which facilitated a relatively faster economic recovery.
Since the start of 2023/24, there are indications of a potential shift in this trend. A surprising interest rate cut by the SNB, the first major central bank to do so, seems to be exerting some downward pressure on the Franc. Parity is once again within reach, especially as further interest rate cuts from the SNB are anticipated. This recent weakening positions the Swiss Franc for its poorest quarter against the Euro since 2003. Among the G10 currencies, only the Japanese Yen has performed worse against the Euro since the beginning of the year. Will this trend continue?
