SNB Chairman Martin Schlegel said at the SNB General Meeting on Friday that the central bank has unrestricted scope to act on the policy rate and to carry out foreign exchange interventions.
He said the Middle East conflict is expected to keep Swiss economic growth subdued. He added that the SNB will adjust monetary policy if needed.
Schlegel said higher energy prices will raise Swiss inflation. He also said the SNB’s willingness to intervene in foreign exchange markets has increased due to the conflict.
After the remarks, the Swiss franc strengthened slightly. USD/CHF was marginally lower at about 0.7860.
The Swiss National Bank is signaling a more aggressive stance to support the franc, creating a ceiling for pairs like USD/CHF. We believe the bank’s increased willingness to intervene makes selling upside optionality on USD/CHF attractive. This suggests a strategy of selling call spreads to capitalize on a capped upside around the 0.7900 level.
This view is strengthened by recent statistics showing Swiss inflation ticking up to 1.5% in March, fueled by Brent crude prices climbing above $100 per barrel. The options market is already reflecting this shift, as one-month risk reversals now show a higher premium for franc strength than they did last week. This indicates traders are actively repositioning for the SNB to defend its currency.
The market may also be underpricing the risk that the SNB will pause its rate-cutting cycle, especially after they just cut rates to 1.25% last month. The central bank’s warning about energy prices and its “unrestricted room to maneuver” suggests the path of least resistance for interest rates is no longer down. We should therefore watch for short-term Swiss interest rate swaps to reprice higher in the coming weeks.
We have seen the SNB make dramatic moves before, such as when they unpegged the franc from the euro back in 2015, causing extreme market volatility. This history shows their threats of intervention should be taken very seriously by the market. The current rhetoric, while less dramatic, follows a similar pattern of putting the market on notice.
Finally, the outlook of subdued economic growth, which we’ve seen corroborated by the State Secretariat for Economic Affairs (SECO) downgrading its 2026 GDP forecast to 1.1%, presents a risk for Swiss equities. This environment suggests considering protective put strategies on the Swiss Market Index (SMI). The combination of geopolitical tension and potential inflation is a classic recipe for increased equity market volatility.
