Middle East conflict drives up Swiss franc safe-haven demand, Swiss National Bank strengthens intervention commitment

Huitong Finance APP News — Swiss National Bank (SNB) Chairman Martin Schlegel stated on Tuesday (March 24) that the Swiss central bank has further increased its readiness to intervene in the foreign exchange market to ease the upward pressure on the Swiss franc. This statement highlights the Swiss central bank’s flexible use of monetary policy tools amid rising global geopolitical uncertainties.

Schlegel, speaking at an event in Zurich, noted that during uncertain times, the Swiss franc is highly sought after as a traditional safe-haven asset. Since the escalation of conflicts in the Middle East, the pressure for the franc to appreciate has significantly increased. The trade-weighted exchange rate shows that since mid-December last year, the Swiss franc has appreciated by about 2.5%.

This rapid and excessive appreciation could lower import prices and threaten Switzerland’s inflation stability goals, so the Swiss central bank must take necessary measures to respond.

Last week, the Swiss central bank decided to keep its benchmark interest rate unchanged for the third consecutive time. In this context, Schlegel explicitly emphasized that foreign exchange market intervention has become one of the most important policy tools at present. The Swiss central bank is willing to directly intervene by selling Swiss francs and buying foreign currencies to prevent the franc from appreciating too quickly, which could adversely affect the export-driven economy. As a country highly dependent on exports, an overly strong franc would weaken the competitiveness of domestic companies internationally, suppress economic growth, and potentially lead to a long-term inflation rate below the target range (0%-2%).

Escalating Middle East conflicts highlight Swiss franc’s safe-haven attributes

Currently, the ongoing escalation of Middle East conflicts has become one of the main risk sources in global financial markets. The conflicts not only push energy prices higher but also increase investor concerns about the global economic outlook. In this environment, funds naturally flow into safer assets, and the Swiss franc, due to Switzerland’s political and economic stability, neutrality, and sound financial system, has become a preferred safe-haven currency.

Schlegel said that the worsening situation in the Middle East has recently significantly increased the upward pressure on the franc. This pressure is driven not only by safe-haven capital inflows but also by interest rate differentials between Switzerland and other major economies. Currently, Swiss interest rates are significantly lower than those in the U.S. and Eurozone. While low interest rates should reduce the attractiveness of the franc, safe-haven demand still dominates, leading to tighter currency conditions in practice.

The Swiss central bank governor also warned that while franc appreciation can temporarily curb import inflation, if the appreciation is too large or too rapid, it will have a noticeable dampening effect on domestic economic activity. Switzerland’s economy is highly open, with a large share of GDP from exports. Every 1% appreciation of the franc could exert visible pressure on manufacturing and tourism sectors.

Enhanced policy flexibility and continued possibility of negative interest rates

Schlegel reiterated that maintaining price stability remains the primary mission of the Swiss central bank. To achieve this, the bank can use both interest rate policies and foreign exchange interventions.

Currently, negative interest rates, which have been effective historically, are no longer the first choice but are not entirely ruled out. Past negative rate policies effectively reduced the franc’s attractiveness and eased appreciation pressures, but they also caused side effects such as real estate bubbles and bank profitability issues. Therefore, the central bank prefers to prioritize foreign exchange interventions to achieve its policy goals.

It is noteworthy that the Swiss central bank has recently made clear that its willingness to intervene in the foreign exchange market has increased significantly compared to before. This shift is interpreted by markets as a policy focus adjustment: with interest rates already near zero or below, foreign exchange intervention will become the main weapon against excessive franc appreciation.

Impact on Switzerland and the global markets

For Switzerland, this stance by the Swiss central bank helps stabilize market expectations and prevents the franc from appreciating uncontrollably in the short term, providing relief for export companies. Meanwhile, the combination of low interest rates and potential interventions is expected to continue supporting domestic credit growth and economic recovery.

From a global perspective, the Swiss central bank’s preparedness to intervene also reflects the fragility of the current international financial environment. The Middle East conflicts not only impact energy markets but also transmit risk aversion to the currency markets. The safe-haven attribute of the franc is often amplified during crises, and the Swiss central bank’s role as a “last buyer” helps dampen extreme volatility and maintain global financial stability.

However, analysts also caution that foreign exchange interventions are not a panacea. If the Middle East conflict becomes prolonged and oil prices remain high, the risk of slowing global economic growth will continue to pressure open economies like Switzerland. The Swiss central bank said it will continue to closely monitor developments and adjust monetary policy as needed to ensure medium-term price stability.

Summary: Flexible intervention to maintain stability

Martin Schlegel, President of the Swiss National Bank, clearly conveyed the bank’s firm determination to maintain currency and price stability amid the current complex environment. By increasing readiness for foreign exchange intervention, the Swiss central bank aims to balance safe-haven demand with economic competitiveness, providing strong support for the Swiss economy.

In today’s rising global uncertainties, this policy signal is significant not only for Swiss financial markets but also offers reference for other small open economies.

Going forward, the movement of the Swiss franc will depend on the evolution of the Middle East situation, global interest rate environments, and the actual intensity of Swiss intervention. Market participants should continue to monitor the Swiss central bank’s actions to seize potential investment and risk management opportunities.

USD/CHF daily chart Source: EasyForex

As of 13:37 Beijing time on March 25, USD/CHF is quoted at 0.7894/95.

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