Since the Middle East conflict began on 28 February, the Swiss franc (CHF) has lagged other G10 currencies. It was the third-worst performer after the NZD and SEK, falling by about 3.0% against the USD.<\/p>\n
USD\/CHF moved back towards resistance near 0.7950 from its 200-day moving average. Earlier in the year it had reached a low just above 0.7600.<\/p>\n
The Swiss National Bank (SNB) has signalled that it will resist sharp CHF gains. On 2 March it said its willingness to intervene in foreign exchange markets had increased to counter \u201ca rapid and excessive appreciation\u201d.<\/p>\n
The SNB repeated this position at its latest policy meeting last week. It said intervention would aim to avoid an appreciation that could threaten price stability in Switzerland.<\/p>\n
Swiss inflation was low before the conflict, which can increase sensitivity to currency strength. Inflation was 0.1% in February, compared with 2.2% in February 2022 before the Ukraine conflict.<\/p>\n
The CHF\u2019s recent weakness may not last if the energy-price shock worsens. A more disruptive global outcome could lead to a reversal in the CHF move.<\/p>\n
The Swiss Franc has not behaved as a typical safe-haven currency since the Middle East conflict began in late February. Instead of strengthening, it has weakened by about 3.0% against the US Dollar, pushing the USD\/CHF pair up towards the key resistance level of 0.7950. This unusual price action is a direct result of the Swiss National Bank’s (SNB) very public commitment to fight any rapid appreciation.<\/p>\n
We see the SNB\u2019s stance as a response to uniquely low domestic inflation, which was just 0.1% before the conflict started. The latest figures released by the Swiss Federal Statistical Office on March 5th showed consumer prices are still only up 0.2% year-over-year, giving the central bank a strong incentive to prevent a stronger franc from importing deflation. This contrasts sharply with the situation in early 2022, when inflation was already at 2.2% before that year’s energy shock, giving the SNB room to welcome a stronger currency.<\/p>\n
Looking back at the period following the conflict in Ukraine in 2022, the franc acted as a classic haven, with the EUR\/CHF pair notably breaking below parity for the first time in years. The current environment is different because the SNB is actively working against this instinct, creating a tug-of-war for the currency. This tension is evident in the derivatives market, where one-month implied volatility for USD\/CHF has climbed from around 5.5% to over 7.0% in the past three weeks.<\/p>\n
For the coming weeks, this creates opportunities for traders who believe the SNB will succeed in capping the franc’s strength. Selling out-of-the-money CHF calls or implementing bearish call spreads on the franc could be a viable strategy to collect premium. This view bets that the central bank’s intervention threats will keep a ceiling on any appreciation, especially as USD\/CHF tests its 200-day moving average.<\/p>\n
However, we remain cautious about assuming this franc weakness will last if the global situation deteriorates. Brent crude prices have already surged by 12% to over $92 per barrel since late February, signaling that the energy shock is a credible threat. Traders who anticipate a wider global economic slowdown could consider longer-dated options, such as buying puts on USD\/CHF, to position for an eventual flight to safety that could overwhelm the SNB’s efforts.<\/p>\n
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