UBS: Swiss Franc Weakness Is Temporary, Rebound Ahead

Key Takeaways on the Swiss Franc

UBS reports that the recent weakness of the Swiss franc, which positioned it as the third worst-performing G10 currency against the US dollar since the start of the Iran conflict, is expected to be short-lived. The bank attributes the decline primarily to temporary factors.

Current Market Situation

The Swiss National Bank’s growing opposition to franc strength and month-end rebalancing flows from local investors were key drivers of the currency's depreciation. Following declines in foreign assets, Swiss real money investors increased demand for USD/CHF and EUR/CHF, contributing to the franc's weak performance last week.

Economic and Market Outlook

UBS expects the impact of these time-sensitive flows to fade in the near term. The bank maintains a bullish forecast for the franc, with a EUR/CHF target of 0.90 for the end of the second quarter. This view is supported by the expectation that lower domestic inflation will allow the SNB to tolerate nominal appreciation, provided the real effective exchange rate remains stable.

Conclusion

The recent retreat in the real effective exchange rate index has eased valuation concerns for UBS. The bank anticipates that temporary pressures on the franc will subside, reaffirming its positive outlook as domestic investors are expected to continue favoring local assets over foreign ones.

FAQ

Q: Why did the Swiss franc weaken recently?
A: The weakness was driven by the Swiss National Bank's policy against a strong franc and month-end currency demand from local investors rebalancing their portfolios.

Q: What is UBS's forecast for the Swiss franc?
A: UBS maintains a bullish view with an end-Q2 target of 0.90 for EUR/CHF, believing the recent weakness is temporary.

Source: Investing.com