Goldman Sachs is arguing this point from the perspective of central bank subordination risks, and notes that the Swiss franc is the “best placed global FX hedge” for that. But the firm also adds in other factors as to why the currency is a solid pick amid the macroeconomic backdrop that is at play currently.
“Our view remains that the Franc is the best placed global FX hedge for central bank subordination risks. As we recently noted, beyond its usual safe-haven properties, the currency is also uniquely resilient to global inflation risks. And, on the domestic front, Switzerland’s backdrop of solid fiscal fundamentals adds to the currency’s safe-haven appeal, insulating the Franc from spillovers across markets during fiscal risk episodes.”
That being said, they are still not convinced that the Swiss franc will be able to offer much gains from hereon. As a reminder, they previously noted that:
“We expect EUR/CHF to remain broadly rangebound In the coming months, with a gradual drift higher to 0.95 to year-end.”
That view is reaffirmed in this latest note as well.
For some context, the SNB is one key risk factor in terms of limiting the currency’s potential. That as they are likely to draw a hard line closer to 0.9200 in EUR/CHF in preventing a major strengthening of the franc at this stage.
A pointer from earlier this week:
“They need to manage things on the inflation front, or should I say deflation, and a stronger currency is not a welcome development. The central bank wants to steer clear from negative interest rate policy for as long as they can do so. But at the same time, that thinking is a double-edged sword in the sense that it keeps the franc currency in a firmer position amid that outlook.
With the dollar and yen stuck in the mud and geopolitical and economic tensions intensifying globally, not to mention with fiscal risks factoring in, that is only going to keep the franc as the preferred haven currency for the foreseeable future.
The only real question is how much can the SNB tolerate this and if they will keep wanting to hold the line at the 0.9200 level. The best they can hope for now is that geopolitical tensions will eventually pass and that will alleviate some pressure from currency gains
