Swiss Franc Struggles Amid Low Yield Expectations

UBS analysts believe that the Swiss franc is struggling due to its low yield, which has led to it being pushed above 0.94 by rising energy prices and expectations of further monetary tightening from central banks.

The bank 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, EUR/CHF could retest 0.96, creating an attractive opportunity to lock in higher levels, according to UBS.

UBS notes that markets have become overly hawkish on rates and believes that the CHF continues to face pressure because of its low yield relative to other currencies. The bank expects EUR/CHF to move higher in the near term but anticipates it to trend lower over the medium term as the SNB eventually starts tightening and rate differentials narrow.

UBS warns that until then, the strong carry disadvantage should continue to weigh on CHF total returns.