On 2 March, the Swiss National Bank said it was “increasingly prepared to intervene” in FX markets, referring to the conflict in the Middle East. It pointed to the risk of rapid currency gains and safe-haven inflows that could threaten price stability. The franc has close trade ties with the eurozone, which can lead to fast price pass-through. Higher eurozone inflation can lift the euro’s real effective exchange rate (REER) versus the franc, as inflation gaps have stayed wide for the past few years.

Nominal Strength And Reer Dynamics

The franc has moved towards new nominal highs, while its REER has shown little change over the past two years. This may allow the SNB to accept some nominal franc strength. At its meeting next week, the SNB may focus on tactical steps to damp volatility rather than signal a wider policy change. Options mentioned include reducing liabilities by buying back bills or not rolling repurchase agreements. Market action could occur if the nominal move is severe, such as several big figures in a single session. Any intervention would be aimed at smoothing volatility in response to events. We recall that around this time last year, in March 2025, the Swiss National Bank signalled it was prepared to intervene in currency markets. This followed concerns over safe-haven flows into the Swiss Franc due to geopolitical tensions. The bank’s main goal was to manage any rapid appreciation that could disrupt price stability.

Implications For Traders And Volatility

The SNB’s tolerance for a strong franc was, and still is, supported by dynamics in the real effective exchange rate (REER). With February 2026 Eurozone inflation figures holding around 2.4% while Swiss CPI remains near 1.3%, the inflation differential continues to widen. This gives the SNB room to accept nominal franc strength without the currency becoming overvalued in real terms. Looking back, the bank’s actions in 2025 were tactical, focused on smoothing extreme volatility rather than dictating a specific exchange rate level. We saw this during a few sessions in the second quarter of 2025 where EUR/CHF saw sharp intraday moves, which were quickly dampened. This pattern reinforces the view that the SNB is not defending a line in the sand but is acting as a volatility brake. For traders in the coming weeks, this suggests that sharp, disorderly moves in the franc will likely be met with intervention. The SNB’s implicit backing makes selling short-dated volatility an attractive strategy. This is especially true as 1-month implied volatility on EUR/CHF is now trading at a relatively subdued 4.8%, down from the peaks of over 7% seen during the instability in early 2025. Therefore, derivative positions that benefit from range-bound price action or a slow, grinding appreciation of the franc are favorable. Selling out-of-the-money calls on EUR/CHF or USD/CHF could allow traders to collect premium, capitalizing on the SNB’s desire to prevent explosive volatility. The primary risk remains a sudden, large-scale event that could overwhelm the central bank’s tactical approach. Create your live VT Markets account and start trading now.

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