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Report9 January 2018Updated one week ago

CHF: Keep the hedging cost low

The Swiss National Bank welcomed last year’s depreciation of the Swiss Franc and has even downgraded its description to being ‘highly’ instead of ‘significantly’ overvalued. So, where is the CHF headed next?

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Executive summary
  • Expect Swiss National Bank to out-dove the ECB in order to widen hedging costs, since SNB notes that Swiss pension funds have been increasingly hedging offshore investment.
  • The central bank might face some challenges in the form of better Swiss activity – yet low Swiss CPI should provide cover for the SNB.
  • Left-field risks exist if Switzerland falls foul of US Treasury currency manipulation laws. Goods surplus of US$20bn with the US could see all three criteria met.

This report is part of our 2018 FX outlook published December 2017