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BNY Mellon strategist Geoff Yu highlights that the Swiss National Bank (SNB) is prepared to intervene in foreign exchange markets if safe-haven demand pushes the Swiss franc (CHF) to overvaluation. However, he notes that the CHF's real effective exchange rate (REER) remains undervalued, giving the SNB flexibility to tolerate nominal strength without immediate action. Current safe-haven flows, driven by geopolitical tensions and global risk-off sentiment, have lifted the CHF against major currencies like the EUR and USD. The SNB's policy tolerance contrasts with its historical interventions to weaken the CHF, reflecting a shift in priorities amid low inflation and economic stability. For traders, the SNB's potential inaction could support the CHF's technical strength, particularly against the EUR/CHF and USD/CHF pairs. However, if the REER moves beyond a 10% undervaluation threshold, intervention becomes more likely. The SNB's balance sheet constraints and limited policy tools (e.g., negative rates) add complexity to its strategy. Market participants should monitor SNB statements and REER data for clues on intervention timing. For global investors, the CHF's safe-haven status remains a key theme. In the Gulf, where forex exposure is significant, a stronger CHF could impact hedging strategies for oil-linked economies. Traders should watch the EUR/CHF cross, which is testing key resistance levels, and SNB policy statements for directional clues. Broader implications include potential spillovers to other safe-haven assets like gold and U.S. Treasuries.
