The franc rally after Christmas, which saw the EUR/CHF pair fall below the 0.93 mark to its lowest level since January 2015 (when the SNB abandoned its peg), was followed by some calmness. The pair ended the first week of 2024 little changed, and the Swiss currency landed in the middle of the G10 FX performance dashboard. There is little to explain the post-Christmas rally in the franc, aside from investor portfolio rebalancing ahead of year-end amid thin liquidity trading.
A significant decrease in short CHF positions from deeply negative levels suggests that investors may see the currency as a useful hedging vehicle in the environment of heightened geopolitical uncertainty ahead of a busy year of elections. We believe it may be difficult, however, for the franc to hold onto its gains given the recent dovish turn from the SNB. Data out this morning on a slightly sharper-than-expected uptick in inflation at the end of the year does not change this view, particularly as both measures of price pressures remain firmly within target.
