Earlier this week, a wave of risk aversion swept across the market and boosted the Swiss franc's rise, offsetting the impact of further interest rate cuts and calling for more action from the Swiss National Bank to cool the franc.
On Monday, the Swiss franc rose to its highest level in nearly a decade against the euro, following its best performance since the beginning of 2022 last week. On Wednesday, Switzerland's largest manufacturing lobby called on the Swiss National Bank to take quick action to stop the franc from strengthening, which harms exporters and endangers economic recovery.
Concerns of U.S. economic recession, geopolitical tension and intense volatility in the Japanese market have revived the attractiveness of the Swiss franc as a safe-haven asset.
Despite the Swiss National Bank's third consecutive interest rate cut in September, long-term investors and speculative capital remain interested. After borrowing Swiss francs and selling them to buy higher-yielding currencies, these bets are being unwound as the attractiveness of the Swiss franc as a safe haven currency increases.
At the same time, it is still unclear whether the Swiss National Bank needs to take more aggressive measures to contain the rise. Data so far show that the franc's strength has not led to inflationary slowdown that could harm the economy. Senior strategist at Bank of New York Mellon, Geoff Yu, said that major forex market interventions are unlikely.
Even though the Swiss franc has risen about 5% since May, Bank of New York Mellon's clients still hold lower allocation to Swiss franc. He said the path of least resistance points to further gains.