CHF is expected to weaken against most of its G10 peers in the medium-term – Citi

Economists at Citigroup expect the Swiss Franc (CHF) to weaken as the Swiss National Bank (SNB) may have ended its tightening cycle.

CHF biased toward an extended period of underperformance

The SNB’s pause at its September meeting at a 1.75% terminal rate likely signals an end to its tightening cycle which leaves CHF biased towards an extended period of underperformance given the significantly lower yield on CHF compared to almost all its G10 peers (ex JPY). 

However, in ending its rate hike cycle, the SNB has indicated its willingness to strengthen CHF should Swiss inflation once again rise above its 2% target. But with Switzerland having an export-to-GDP ratio of 75% and much more geared towards export performance than its peers, the SNB is likely to be more careful this time about supporting a stronger CHF especially as its growth outlook weakens significantly. 

CHF is expected to weaken against most of its G10 peers in the medium-term as investors use the currency as a low-cost funding vehicle to buy risk assets and FX.