CHF Best Performing Currency of G10 in March

CHF Best Performing Currency of G10 in March

05 April 2023

The Swiss franc was the best performing currency in the G10 in March, before the British pound and the Japanese yen, despite Credit Suisse crisis.

Still Safe-Haven

The Swiss franc managed to keep its safe-haven status even amid huge crisis with one of the biggest Switzerland’s bank, Credit Suisse. The bank was rescued at the last minute with a takeover by UBS, orchestrated by the Swiss National Bank. CHF exchange rate remained strong as investors decided to buy Swiss francs as safe investment. Even though one of biggest recent crisis on financial market happened right there in Switzerland. However, the quick manner in which the Swiss bank problem was resolved did not reflect negatively on the franc. The banking sector situation meant that low-yielding currencies such as the yen and the franc benefited. What is more the SNB's decision to hike by 50 bps also helped the franc strengthen. 

Open to Forex Interventions

A few days ago, the SNB said it has the option to sell foreign currencies as an alternative to raising rates in the future. The Bank released its quarterly monetary policy statement at the meeting, which suggests that further tightening will be necessary. Partly for this reason, only a modest upward movement has been observed recently in the EUR/CHF exchange rate. The currency pair has been moving in a range between the levels of 0.9700 - 1.0100 since the first half of November 2022, and the rate is currently in its center at 0.9900.

Interest Rates Up

What has been also triggering stronger exchange rate of CHF recently was the surprise decision of the SNB o further raise interest rates. At the end of March the SNB raised interest rates by 50 bps, they rose to 1.5%, to the highest level in 15 years, since the 2008 crisis. The central bank of Switzerland remained unfazed by the problems of the banking system and domestic giant Credit Suisse, and despite investor expectations did not decide to hike rates by smaller percentage. The SNB continues to tighten monetary policy and in this way tries to cease some newly renewed inflationary pressures. It cannot be ruled out that additional interest rate hikes will take place to ensure price stability in the medium term. Following the decision, the Swiss franc exchange rate was gaining against the dollar, but not that much seen versus the euro.

CHF Rate Prognosis

MUFG analysts claim that: "The SNB is using FX to help fight inflation and has been selling foreign currency bought previously when fighting deflation risks. This is likely to continue and hence Eurozone growth improvement after a weak H1, and improved broader risk sentiment as inflation declines will only have a limited impact on weakening CHF." They expect the pair EUR/CHF to trade slightly above 1.00 over the coming months.