Swiss Franc Struggles Amid Low Yield and Hawkish Central Banks

UBS is warning that the Swiss franc (CHF) continues to struggle due to its low yield, which has widened the gap in interest rates between it and other major currencies.

The bank notes that the CHF's low yield is making it less attractive for investors compared to other currencies, and this is being exacerbated by rising energy prices and expectations of further monetary tightening by central banks such as the European Central Bank, Federal Reserve, and Bank of England.

UBS expects little change in the September Swiss National Bank meeting, and does not anticipate a rate hike. If the SNB remains on hold while other G10 central banks maintain a hawkish stance, the EUR/CHF exchange rate could retest 0.96, creating an attractive opportunity for investors to lock in higher levels.

However, UBS believes that markets have become overly hawkish on rates, and expects the CHF to trend lower over the medium term as the SNB eventually starts tightening and interest rate differentials narrow.