UBS expects USD/CHF to trade firmly below 0.80 in the long term

The Swiss franc has maintained significant strength against the dollar, with USD/CHF trading below 0.80, even after the SNB's recent rate cut to 0% and potential for further easing. UBS analysts project USD/CHF to remain firmly below 0.80 long-term, though they caution that the CHF's total return potential against the USD is not compelling due to the dollar's carry. While recent CHF appreciation from market tensions may not be sustainable, UBS advises investors to consider exposure to GBP, Scandinavian currencies, and AUD, expecting them to outperform the CHF in H2 2025, and recommends USD hedging primarily for volatility and tail risk management.

Analysis

The Swiss franc is exhibiting notable resilience, with the USD/CHF exchange rate holding firmly below the 0.80 level despite a recent 25 basis point rate cut by the Swiss National Bank to 0% and an impending July 9 US tariff deadline. This strength is contrasted by a challenging total return outlook, particularly against the US dollar, where a significant negative carry differential makes holding long CHF positions costly. While the EUR/CHF pair remains stable within a 0.930-0.945 range, the franc's recent appreciation against other currencies like the British pound and Australian dollar is viewed as potentially unsustainable and driven by transient market tensions. The SNB maintains a dovish stance, signaling a readiness to implement negative rates if the franc strengthens excessively. Consequently, while the long-term spot forecast for USD/CHF remains below 0.80, analysis suggests that using the franc for USD hedging is primarily a risk management tactic for volatility, with costs likely to exceed long-term spot returns.

Key Decisions for Investors

• Investors should be cautious about the total return potential of long Swiss franc positions against the US dollar, as the high USD carry is expected to erode gains from spot price strength.
• Consider tactical opportunities to gain exposure to the British pound, Scandinavian currencies, or the Australian dollar against the Swiss franc, as these are projected to outperform in the second half of 2025.
• Utilize CHF-based hedges for US dollar exposure primarily for short-term volatility and tail-risk management, as long-term hedging costs are projected to be prohibitive.
• Monitor future Swiss National Bank communications closely, as any further rate cuts into negative territory would be a key catalyst impacting the franc's valuation and carry profile.