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UBS: CHF's safe haven appeal fading

The picture of the global economic recovery (US, Japan, UK and euro zone) and the SNB’s firm commitment to maintain the 1.20 EUR/CHF cap suggest the Swiss franc’s attractiveness as a safe haven will fall further.

UBS sees 3 fundamental internal reasons for the CHF demand to weaken:

  1. SNB will hold the low rates and the cap for long. The Swiss National Bank is likely to be one of the last central banks to start normalizing monetary policy over the next few years. Swiss policy makers believe an increase in interest rates would endanger the limit on the currency and risk tipping the economy into deflation.
  2. Swiss banks are gradually returning capitals back into francs. The large scale deleveraging that Swiss banks have undertaken since the credit crunch began, primarily through selling foreign assets and returning capital back into francs, appears to have finished.
  3. Swiss investors are starting to purchase foreign assets as EU tensions eased. The unwillingness of Swiss portfolio managers to purchase foreign assets since the euro zone crisis began in 2010 may also finally be coming to an end. 

Economists expect the risk-averse investors to switch to the US dollar and the Treasury bonds when seeking to hedge risks. The dollar should benefit this year from the Fed tapering its asset purchases, while the US Treasuries demand would grow if emerging market turbulence intensified.

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