JPMorgan: Downturn and Risk Could “Drive Sharp and Accelerated Gains in CHF.”

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There are several speculations that the Federal Reserve is about to lower interest rates, and this is expected to put the Swiss franc on the bullish move with history on its side.

JPMorgan Chase & Co. opined that the franc remains the best-performing currency in the past four cycles of rate-cutting among the top currencies. The Swiss franc is rallying already with the plummeting of Treasury in the same vein. There are also indications that there might be a repeat in this same pattern. This has led to the upgrade by the Swiss National bank of its franc forecast on Monday.


A strategist at JPMorgan, Paul Meggysesi said in a report that “A downturn in the global economy and risk markets would have the potential to drive sharp and accelerated gains in CHF.”

Meggysesi sees the franc becoming stronger to a new rate of 0.95 to the dollar, which was the strongest since March 2018; this is against the previous target of 0.98, which is a reflection of a possible Fed easing. JPMorgan further stated that the rate market is currently pricing in 78 basis points of rate cuts and this will continue for the next 12 months

The tension caused by the US-China trade war is compelling investors to go for haven currencies in preparation for a possible recession. The franc has risen in value by up to 2% against the US dollars and has, therefore, topped every other pair currency in the Group-of-10. The currency experienced little change in value as at 8:06 am London time on Tuesday at 0.9900 per dollar.

JPMorgan stated that the current account surplus for Switzerland amounts to 10% of the GDP, which is three-fold that of Japan; this makes the franc a reliable refuge. The yen rivals the franc as a preeminent safe-haven among other currencies.

There are expectations that the yen will lure buyers that are looking for a haven from the ongoing trade war. However, it is being topped by the average performance of the franc in the 12 months after the first rate cut in a major cycle of Fed easing of 1981, 1989, 2001 and 2007. Studies show that the franc is among the top three performers around in the last five US recessions.

The Swiss National Bank may decide to slow down the appreciation of the franc. However, JPMorgan states that the SNB never intervened in any material size in the course of the Italian crisis last year.

Meggyesi stated that “the currency is rather less constrained by the SNB than it has been for much of the past decade.

“Entering the next recession with reserves at 120% likely means that the SNB will need to be more receptive to fundamental pressure for CHF appreciation than it was entering the financial crash when FX reserves were less than 15% of GDP.” He went further by saying, “The SNB’s magazine may not be entirely empty, but it has far fewer bullets than it once did.”


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