Swiss franc’s surge on tariff turmoil pressures SNB to act

The Swiss franc’s rapid appreciation on U.S. policy uncertainty could force the Swiss National Bank to intervene soon, as Swiss industry hopes the safe haven currency’s surge can be tamed before it deals another blow to a tariff-threatened sector.

The franc has surged roughly 9% against the dollar so far this month, and is set for the biggest monthly gain since the 2008 financial crisis. Last week it hit its strongest level since January 2015 when the SNB scrapped its minimum exchange rate.

That has pulled the franc, also known as the Swissie, up 2.6% against the euro in April, taking it close to its strongest level in more than 10 years.

But the rush into the franc, spurred by concerns about U.S. President Donald Trump’s trade policy gyrations, puts the SNB’s 0-2% inflation target at risk by depressing the cost of imports at a time when inflation is already near zero.

It also hurts Swiss exporters potentially facing 31% U.S. tariffs by making their goods dearer abroad.

“The rise of the Swiss franc is the final ingredient for a poisonous cocktail for Swiss industry,” said Jean-Philippe Kohl, vice director of industry association Swissmem.

“Companies are already struggling with weak demand abroad, the threat of massive American tariffs on Switzerland, and uncertainty caused by President Trump’s trade policy.”

Swissmem refrained from demanding SNB action, but would welcome any moves by the central bank to mitigate the franc’s rise, Kohl said.

Interventions, rather than rate cuts, are probably the SNB’s best tool, with its key rate already at 0.25% and expected to dip further, analysts say.

“If everybody is fearful and insecurity is high, nobody really cares about the interest rate in Switzerland,” said Thomas Stucki, former head of asset management at the SNB and Chief Investment Officer at St Galler Kantonalbank.

Selling francs to weaken the currency would be a shift for the SNB, which bought only 1.2 billion francs of forex last year and sold foreign currencies worth nearly 133 billion francs in 2023 as it sought to shore up the Swissie to cool inflation.

Interventions carry their own risks, such as Washington branding Switzerland a currency manipulator. This occurred in 2020 during Trump’s first administration.

ING’s global head of markets Chris Turner said one factor in the background driving Swissie strength, on top of safe-haven flows, was markets questioning “whether the SNB will be as able to undertake large scale FX buying as they have in the past.”

Pain threshold?

The SNB said this month it does not engage in currency manipulation and only intervenes to foster price stability. It has also said it could return to negative rates.

But negative rates were unpopular with banks, savers and pension funds when the SNB imposed them from late 2014 to 2022, making interventions look easier to manage.

UBS economist Maxime Botteron did not rule out that limited sales of francs by the SNB were already underway, but he did not expect systematic interventions.

“Interventions are more flexible than interest rate cuts – the SNB can go into the market, sell some francs to ease the appreciation, and then stop,” he said.

The SNB declined to comment on the franc’s value or how it would react.

It’s the currency’s rally against the euro that policymakers are likely watching most since the bulk of Swiss trade is with eurozone members, giving euro-denominated imports more influence over inflation. In 2023, 57% of Swiss imports were invoiced in euros, compared with 13% in dollars.

The central bank has said it does not look at particular currency pairs, but a basket of currencies when deciding policy, and would act to meet its inflation target.

Swiss Re’s Head of Macro Strategy Patrick Saner said intervention was likely, especially with the real effective exchange rate of the franc reaching post-2015 highs.

“The speed and magnitude of the recent Swiss franc rally, particularly since April 2, significantly raises the odds that the SNB is close to seeing this as a “threshold moment” for intervention,” he said.

“While political optics matter…. intervention remains likely if price stability is at risk.”