Demand for the Swiss Franc Reaching Extraordinary Levels

The current demand for the Swiss Franc has pushed the currency 2.00% higher against the Euro and 3.50% higher against the US Dollar, the highest the Franc has been against both currencies for over a decade. Investors have piled into the currency, with some experts suggesting they are treating the CHF as the safest haven in the market, as Switzerland has only a modest debt, predictable policies and a stable economy.

However, the SNB (Swiss National Bank) may pose a risk to investors, as to curb deflationary pressures, they may intervene in the currency markets. Another option open to the SNB, is to move interest rates into negative territory (currently 0.00%); however, the President of the SNB, Martin Schlegel, said in the past that such a move faces some serious headwinds but would do so if necessary. However, the SNB has a delicate line to tread as negative interest rates will upset savers, individuals, insurance companies and pension funds, whilst currency intervention may risk a rebuke from the United States.

Analysts suggest that the recent surge may also be partly due to a Swiss Franc Bond issued by Alphabet, the parent company of Google. Analysts advise that a five-part bond sale raised CHF3.055 Billion spanning maturities of 3 – 25 years. This bond sale was part of a $31.50 Billion global bond raise with Alphabet selling a rare 100-year bond, which raised £1 billion with a coupon of 6.125%, and further sales of sterling bonds in a five-part offering raised £5.5 billion.

Financial markets suggest that the EUR/CHF rate is projected to remain under pressure, possibly trending towards 1.04 -1.06, indicating continued CHF appreciation. The Swiss Franc has previously shown and is currently showing high resistance to other major currencies, including the US Dollar, as the currency continues to be supported by safe haven demand, particularly in times of geo-economic and geopolitical turbulence.