UBS cuts EUR/CHF targets as Swiss franc defies traditional patterns

UBS has revised its EUR/CHF targets downward to 0.93 for end-2025 and 0.90 for end-2026, citing the Swiss franc's unexpected and persistent strength, which contradicts its traditional safe-haven role amidst buoyant risk appetite. This resilience is attributed to the franc's 'hard asset' appeal amid G10 fiscal and inflation concerns, alongside significant FX hedging demand from Swiss entities. Given the SNB's reluctance to aggressively intervene and resilient Swiss inflation preventing further easing, UBS anticipates limited potential for significant franc weakness, unless large-scale intervention resumes or deflationary pressures prompt negative rates.

Analysis

UBS has revised its EUR/CHF forecast downward, targeting 0.93 by the end of 2025 and 0.90 by the end of 2026, signaling an expectation of continued Swiss franc (CHF) appreciation. This outlook is notable as the franc's strength persists despite a broader risk-on market environment, contradicting its traditional role as a safe-haven currency. UBS attributes this resilience to two primary factors: the franc's growing appeal as a 'hard asset' amid concerns over loose fiscal policies and high inflation in other G10 economies, and significant pent-up demand for FX hedging from Swiss corporations and institutional investors. The forecast is further underpinned by domestic monetary policy constraints, as resilient Swiss inflation prevents the market from pricing in further easing by the Swiss National Bank (SNB), whose policy rate is already at zero. With the SNB showing reluctance to engage in aggressive currency market intervention, the potential for significant franc weakness is considered limited, barring a major shift such as the onset of deflation that could force the SNB to consider negative rates or a return to large-scale intervention.

Key Decisions for Investors

• Investors should consider positioning for continued Swiss franc strength against the euro, in line with UBS's revised targets of 0.93 and 0.90 for 2025 and 2026 respectively.
• Monitor Swiss inflation data closely; any significant drop towards deflationary territory could be a leading indicator of a potential policy shift from the SNB, creating a catalyst for franc weakness.
• For portfolios exposed to fiscal and inflationary risks in major economies, the Swiss franc may serve as an effective diversifier, given its emerging role as a 'hard asset' independent of traditional risk-off sentiment.