Goldman Sachs expects the Swiss franc to regain strength versus the euro after a period of relative weakness, arguing that growing inflationary risks will constrain the Swiss National Bank's (SNB) appetite for currency interventions.
The franc underperformed in March after the SNB signaled an explicit shift in its intervention bias at the onset of the current energy shock. Goldman Sachs notes parallels with 2022 when an initial phase of franc weakness, attributed to SNB activity, later gave way to a more pronounced slide in EUR/CHF as market dynamics changed.
Inflation as the dominant influence on SNB interventions
Goldman Sachs places particular emphasis on Switzerland's near-0% starting point for headline inflation as a key factor behind the SNB's increased readiness to oppose franc appreciation. The bank's analysis finds that, historically, the level of inflation has been a clearer determinant of when and how the SNB intervenes than the absolute level of the EUR/CHF exchange rate.
Recent data delivered a mixed signal. March headline inflation printed with a softer-than-expected pickup, yet a sharp increase in the prices component of the March Swiss manufacturing PMI suggests inflationary pressures are building up beneath the surface. Goldman Sachs interprets this PMI development as a sign that the hurdle for inflation to overshoot the SNB's March projections has lowered, making higher inflation outcomes more plausible.
Near-term intervention stance and medium-term outlook
The SNB's current willingness to intervene may continue to mute the franc's traditional haven demand in the short run. Nonetheless, Goldman Sachs increasingly favors taking outright positions that anticipate EUR/CHF weakness over the medium term. The bank argues that an escalation in inflation risks tied to the energy shock would likely lead to greater acceptance of a steadily stronger franc.
In sum, Goldman Sachs' view is that while the SNB's intervention stance has weighed on the franc recently, mounting inflation pressures could limit future interventions and set the stage for franc appreciation against the euro.