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Mar 21 - 06:55 PM

HSBC: CHF Emerges as Preferred Funding Currency Following SNB Surprise Cut

By eFXdata  —  Mar 21 - 03:00 PM


The Swiss Franc (CHF) has solidified its position as the year-to-date weakest currency among its G10 counterparts, exacerbated by the Swiss National Bank's (SNB) unexpected decision to reduce rates by 25 basis points. Citing continuously declining inflation rates now sitting below its target, alongside subdued global economic activity, the SNB's preemptive rate cut positions the CHF as a prime funding currency in the current low volatility FX environment.

Key Points:

  • SNB Rate Cut: The SNB's surprise 25bp rate cut is primarily justified by sustained low inflation and dim global economic prospects.
  • Inflation and Economic Projections: With inflation forecasts significantly adjusted downwards compared to December, the SNB demonstrates a commitment to its price stability target amidst an uncertain external economic landscape.
  • CHF as a Funding Currency: This move shifts the market's perception of CHF, propelling it to become the go-to currency for funding, given the broader context of minimal FX market fluctuations.
  • SNB's Currency Stance: Although the SNB's commentary on CHF was measured, indicating a readiness to intervene in FX markets if deemed necessary, its immediate inclination doesn't appear to lean towards actively seeking currency depreciation.


The Swiss National Bank's unexpected rate cut not only underscores its vigilance towards inflation and external economic threats but also alters the strategic positioning of the Swiss Franc in global currency markets. As the first G10 central bank to enact a rate decrease, the SNB's move significantly enhances the CHF's appeal as a funding currency amidst the prevailing climate of low foreign exchange volatility. While the SNB maintains a neutral stance on currency intervention, the depreciating real value of CHF might prompt reevaluation of this policy in the foreseeable future.

HSBC Research/Market Commentary


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