SNB's Hold View Reinforces Franc's Funding Currency Role

The Swiss National Bank's (SNB) decision to hold its policy rate at 1.75% has reinforced the Swiss franc's status as a preferred funding currency, according to ING analysts.

This cautious approach is driven by global economic uncertainty and subdued inflation pressures in Switzerland, with the country's inflation rate standing at 1.4% in January 2025, well below the SNB's 2% target ceiling.

The franc's role as a funding currency is supported by its low interest rate policy, which makes it an attractive vehicle for carry trades. Investors borrow in low-yielding currencies like the franc to invest in higher-yielding assets elsewhere.

For currency traders, the SNB's hold view means the franc is likely to remain under pressure against higher-yielding currencies, such as the euro and the dollar, unless the central bank intervenes in foreign exchange markets if the franc appreciates too sharply.