Swiss franc is once again becoming a safe-haven currency

After a few months in which the Swiss franc was not in particularly high demand, it has recently been rising sharply once again. This is primarily due to the weakness of the euro. Political developments in France are weighing on the single currency.

Early on Thursday afternoon, the Swiss franc even fell below the 92-rappen mark against the euro once again. This took the franc to its highest level since early July.

At the start of the month, a euro was still costing almost CHF0.95 rappen. The franc has also strengthened significantly against the US dollar recently. Most recently, a dollar cost CHF0.82, whereas at the start of the month it was at times still trading at almost CHF0.84.

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The main reason for the slight weakness of the franc a few weeks ago was the widening interest rate differential between the eurozone and the dollar zone. While the Swiss National Bank (SNB) was able to keep its key interest rate at zero thanks to persistently low inflation, both the European Central Bank (ECB) and the US Federal Reserve (Fed) had recently raised their interest rates.

Sentiment has completely reversed

However, sentiment has now reversed completely within a short space of time. What is causing financial market participants particular concern is the high and still-rising level of debt in France, the ongoing political uncertainty accompanied by unrest, and next year’s presidential elections. As a result, yields on French government bonds are now higher than in former problem countries such as Greece or Italy.

For ten-year government bonds, the yield spread over comparable German bonds has even reached its highest level in 15 years at just under 1.7 percentage points. As France is the second most important EU country after Germany, there is a great deal of uncertainty.

Will the euro soon fall below 90 rappen?

Market participants are understandably unsettled. The ongoing protests are not exactly inspiring confidence, according to a foreign exchange commentary by Valiant Bank this week. This is less due to the images of rioting than to the demands – some of which are justified – the fulfilment of which would entail high costs.

As the problem is unlikely to vanish into thin air any time soon, it is reasonable to assume that inflows into the Swiss franc will increase again and that the franc will regain its role as a safe haven. As during the euro debt crisis, the euro/franc pair is thus increasingly serving as a barometer for risks within the eurozone, according to a commentary by the private bank UBP.

Despite short-term interest rate differentials that remain favourable for the euro, the downside risks are likely to persist in the coming weeks and intensify as we look towards 2027. In the medium term, exchange rates of just under CHF0.90 per euro are even possible, according to the private bank’s analysts.

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Translated from German, reviewed by an English Department journalist.