Swiss Franc’s sparks Surge to return to negative interest rates

The Swiss franc has increased to a decade to the maximum of the dollar, as investors rushed to refugee from the global trade crisis, causing betting that the country’s central bank will have to reduce interest rates to zero or below to stop the rise of the coin.

The currency, historically a refuge in the financial market due to the political and economic stability of the alpine country, reached a record force almost against the dollar this week, with the green sinking near SFR0.80 for the first time since the esteem of the crash of free 2015.

This has put policymakers, as they seek to curb the currency to support the heavy economy of export without provoking a reaction from the United States, which has already threatened Switzerland with high rates.

These “cross -currents” placed the central bank in a “impressively difficult” position, said Kit Jukes, a FX strategist in Société Générale.

“The Swiss government does not want significant disinflatational pressures to occur and therefore are frustrated,” he added.

The returns on the short -term government debt have been immersed in a negative territory in recent days, as traders opted for the Swiss National Bank to respond to interest rate cuts. The two -year Swiss returns, which reflect the expectations of interest rates, were traded marginal below zero on Friday.

The rapid esteem in the franc risks a deflactional shock for Switzerland, according to analysts, aggravated the impact of the growth of the trade war of the United States President Donald Trump.

At 31 percent, the “reciprocal” rates placed in the Swiss goods earlier this month, before being suspended for 90 days, exceeds EU taxes. Switzerland is based on North -American consumers for more than 10 percent of exports.

The situation has pushed the government to a diplomatic offensive.

Swiss President Karin Keller-Sutter, who is also the Minister of Finance, held a telephone call with Trump hours before he announced the fare pause. This week he traveled to Washington with the Minister of Economy for a meeting with United States Treasury Secretary, Scott Bessent, in which he said they discussed “improved collaboration opportunities between our two countries.”

Switzerland, who has historically tried to curb the strength of his coin, is not foreign to sharp movements. In January 2015, the SNB suddenly searched its policy of collecting the value of free against the euro, sending the growing currency.

Analysts say that Berna fears that the United States will have a currency brand for the United States if it had to intervene in the markets to restart the franc.

Switzerland was added to a north -American list of “coin manipulators” in recent weeks of Trump’s first presidency, in part due to his speech to cushion the financial crisis of the coronavirus pandemic. Was removed from the Biden Administration list.

The franc has also increased against the euro, leaving the country related to export in a difficult position with its largest commercial partner.

The SNB has already moved faster than its peers to reduce its key interest rate to 0.25 percent, and are cut as a diplomatically secure option to arrest the increase in the franc.

The SNB kept its rates well below zero for eight years, partly to stop the Francan far, before climbing them to a positive territory in 2022 to combat the gust of inflation that followed in pandemic.

“If the SNB is not satisfied with the strong Frenchman and is limited to FX interventions, the lower rates are the only option,” said Francesco Pesole, a FX to Ing strategist.

Stefan Gerlach, an EFG Bank’s chief economist, said that negative interest rates “can have a good time”, adding that currency intervention could also be required.

Gerlach played for the possibilities that Switzerland would be labeled again as a coin. There is a sense among the “adults of the room” in the United States Treasure Department that this is not a problem, he said.

“It may be a problem if you increase the exchange rate to get competitive advantage. But it is not a problem if your currency increases and try to moderate their increase.”

The markets are about 80 percent of the rate that falls to the next June meeting, with a small possibility that it can be transferred to a negative territory at the end of the year, according to the levels involved in the Swaps markets.

Annual inflation is around 0.3 percent, already at the bottom of the target range of the central bank from zero to 2 %.

The Swiss Central Bank is “definitely worried,” said Gregor Kapferer, Vontobel’s good Swiss head, arguing that a larger intervention would be a “last resort”.

“During Trump’s latest administration, they were called currency manipulator, but there were no really consequences. Now Trump continues why I think SNB will be much more cautious here.”

But Athanasasios Vemvakidis, the Bank of America’s Global Head of G10 Fx Strategy, suggested that the SNB “rest against the wind” with some interventions.

“It is difficult to imagine that the United States administration will complain about some intervention,” given the rapid estimate in the coin, adding that this approach seemed more likely than negative interest rates.

Apart from the 2015 clash, the dollar closes its 2011 minimum against the franc.

“Maybe (the Frank) only needs a quiet world than this,” said Juckes de Société Générale. “The danger is, according to history, over time, it becomes stronger.”