The Swiss franc has appreciated by 6.5% against the USD and 2.7% against the euro, making it the second best-performing currency among the Group of Ten (G-10) countries. CHF surged to its highest level against the US dollar in over eight years after the underperforming US inflation data.
On Wednesday, the currency climbed as much as 1.5% to reach 0.8660 per dollar, a level not seen since January 2015. At that time, the Swiss National Bank had just ended a three-year policy of limiting the franc’s appreciation against the euro, leading to a significant rally in the currency.
The Swiss franc, known both as a safe haven and a currency used for carry trades, has been strengthening since late last year due to expectations of a narrowing interest rate differential between Switzerland and the US.
The Swiss National Bank has already raised rates by 250 basis points in its current tightening cycle, bringing them to 1.75%. Another potential hike is expected in September. Inflation is expected to average 2.2% in the coming two years.
To combat inflation, the Swiss National Bank has been selling foreign currency. However, policymakers are willing to buy foreign currency if there is excessive upward pressure on the Swiss franc. Although currently, the major focus remains on selling.
Vice President Martin Schlegel recently stated that additional rate hikes aimed at controlling inflation do not pose a threat to financial stability.
