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Investors Bet on Swiss Franc's Rise Despite Central Bank Intervention

Switzerland has this year intervened in currency markets the most since 2012, yet the franc keeps strengthening. That is a trajectory investors bet has further to go.


Swiss National Bank

SNBN 0.83%

last week said it has spent 90 billion Swiss francs ($98 billion) in the first half of the year to keep its currency from appreciating.

Still, the franc has gained 5.7% against the dollar this year and traded Monday at $1.0928 apiece. That is because the dollar has weakened: The WSJ Dollar Index, which tracks the currency against a basket of others, has declined 1.2% in 2020.

In recent weeks, speculative investors have increased bets that the Swiss franc will continue to strengthen against the dollar. The currency continues to be broadly viewed as a haven asset and tends to rally when investors grow risk-averse.

One reason investors are betting on appreciation: The stronger the franc gets against the dollar, the less likely Switzerland will draw criticism or sanctions from the U.S.

President Trump’s coronavirus infection, the November election and other political uncertainties in the U.S. are weighing on the Trump administration and could help shield the Alpine nation from tariffs and other punitive actions in connection with its currency interventions.

“You’re unlikely to see aggressive moves against Switzerland at this point in time,” said Peter Kinsella, global head of foreign exchange strategy at Union Bancaire Privée. “The U.S. administration possibly has bigger fish to fry.”

In previous years, Mr. Trump has frequently decried that other economies, including the eurozone and China, have gained the upper hand in trade by lowering interest rates, which allows their currencies to weaken. A cheaper currency can make a nation’s exports more competitive. Switzerland has historically managed its currency, and been put on the U.S. watch list in the past.

Switzerland was added to the Treasury’s watch list of currency manipulators in January.


arnd wiegmann/Reuters

Any action by the U.S. Treasury Department could prove to be merely symbolic, at least initially. Washington is more likely to consult with the International Monetary Fund to try to eliminate the unfair advantage the currency measures have given a country, if it does anything at all.

But over the longer term, the U.S. could opt to levy tariffs against imports of drugs, precious metals, art or antiques from Switzerland.

The Treasury uses three criteria to assess whether a country manipulates its exchange rate: active intervention in currency markets, trade surpluses with the U.S., and a large country’s current-account surplus, which is a broader measure of trade that includes investment income and other financial flows.

Switzerland was added to the Treasury’s watch list of currency manipulators in January, after it met the requirements on trade surplus and current-account surplus. At the time, its currency intervention was less than 2% of its gross domestic product. But the first six months saw the SNB use an amount equivalent to more than 10% of its annual output of goods and services.

The Swiss data released last week marks the first time that quarterly figures were disclosed. The central bank has historically only released annual data.

Investors expected the U.S. to release an updated report on currency manipulators over the summer. One could still be forthcoming, they said. The Treasury didn’t immediately respond to a request for comment.

If the U.S. labeled Switzerland as a manipulator, the franc might briefly rally sharply against the dollar and euro, said Luca Paolini, chief strategist at Pictet Asset Management. But that would possibly prove to be a fleeting reaction: The SNB has previously told markets that the U.S. threat won’t deter it from currency interventions.

“The impact is going to be very short term,” Mr. Paolini said. He expects the dollar to weaken, lending to the franc’s strength.

The Treasury in August said Vietnam depressed its currency in 2019, providing the first test case for a Trump administration initiative to levy tariffs against countries for alleged currency manipulation. On Friday, the U.S. said it would launch an investigation into Vietnam’s actions in the same process it used to place tariffs on Chinese goods.

“The SNB’s foreign-exchange market interventions are motivated purely by monetary policy considerations,” said Fabio Sonderer, a spokesperson for the SNB. “They are not aimed at conferring advantages on Switzerland by undervaluing the franc.”

The strengthening franc makes Switzerland’s imports cheaper and exports more expensive, weighing on its inflation.

Mr. Sonderer also noted that Switzerland and the U.S. are “important economic partners” that are in frequent contact regarding financial and economic matters.

While the coming U.S. election may shield Switzerland from any immediate actions by the U.S., it may also serve to inhibit further intervention in currency markets by the SNB.

“With the elections coming up, you don’t want to be seen doing anything,” said Mr. Paolini. He expects that the SNB will slow its steps for the rest of the year, and the Swiss franc will appreciate against the dollar. “It’s a very volatile and uncertain situation.”

In bond markets, the yield on the 10-year Treasury climbed to 0.76%, from 0.694% Friday.

Write to Caitlin Ostroff at

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