Brown Brothers Harriman said the Swiss National Bank kept its policy rate at 0.00% for a fourth consecutive meeting and framed the outcome as a neutral hold. The firm noted the SNB lifted its inflation projections through Q1 2027, yet forecasts remain within the bank’s price stability definition of under 2% per year, leaving scope for rates to stay unchanged for some time.
The report added that this policy stance could continue to weigh on the Swiss Franc. In derivatives pricing, the swaps curve is said to imply about 50% odds of a 25 bps move, taking the policy rate to 0.25% over the next twelve months.
Policy Divergence And Pressure On The Swiss Franc
We see the Swiss National Bank’s decision to hold its policy rate at 0.00% as a significant signal for the coming weeks. This policy divergence is widening, especially with the European Central Bank’s rate standing at 2.5% and the US Federal Reserve at 3.0%. This growing yield differential puts sustained downward pressure on the Swiss Franc.
Strategies Amid Carry Trade And SNB Intervention Risk
Given this outlook, we believe positioning for further CHF weakness through derivatives is the most prudent strategy. We are looking at buying call options on currency pairs like EUR/CHF and USD/CHF to capitalize on potential upside with defined risk. Current low implied volatility in these pairs, recently trading around 5-6%, makes these option strategies particularly attractive.
This environment is also ideal for implementing carry trade strategies, where traders can short the zero-yielding franc to fund purchases of higher-yielding currencies. The consistent forward points in the swaps market reflect this, making it a steady source of positive carry. Historically, such clear policy divergences have fueled durable trends, as seen in the mid-2000s.
We must remain vigilant for any shifts in global risk sentiment, as geopolitical tensions could trigger a flight to safety, temporarily strengthening the franc. The SNB has historically intervened to weaken the CHF, with foreign currency reserves once exceeding 900 billion CHF, so their tolerance for a strong franc is very low. Traders should monitor upcoming Swiss inflation data, as the latest 1.4% reading leaves little room for any surprise uptick that could alter the SNB’s neutral stance.
