Middle East conflict boosts Swiss franc safe-haven demand, Swiss National Bank intensifies intervention resolve

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

In remarks at an event in Zurich, Schlegel noted that in times of uncertainty, the Swiss franc, as a traditional safe-haven asset, is highly sought after. Since the escalation of the conflict in the Middle East, the Swiss franc’s appreciation pressure has risen significantly. Trade-weighted exchange rates show that since the mid-December of last year, the Swiss franc has appreciated by about 2.5%.

This rapid and excessive appreciation will lower import prices and, in turn, threaten Switzerland’s goal for price stability; therefore, the Swiss central bank must take the necessary measures to respond.

The Swiss central bank decided last week to keep the benchmark interest rate unchanged, marking the third consecutive time it has held steady. Against this backdrop, Schlegel clearly emphasized that foreign-exchange market intervention has become one of the most important policy tools currently. The Swiss central bank is willing to intervene directly in the market by selling Swiss francs and buying foreign currencies, to prevent the Swiss franc’s appreciation from happening too quickly and having adverse effects on an export-oriented economy. As a country highly dependent on exports, Switzerland will see local firms’ international competitiveness weakened by an overly strong Swiss franc, suppress economic growth, and potentially keep the inflation rate below the target range (0%-2%) for the long term.

As the Middle East conflict escalates, global uncertainty rises, and the Swiss franc’s safe-haven attribute stands out

Currently, the ongoing escalation of the Middle East conflict has become one of the major sources of risk in global financial markets. The conflict not only drives up energy prices but also increases investors’ concerns about global economic prospects. In this environment, capital naturally flows toward assets perceived as safer, and the Swiss franc has become the preferred safe-haven currency due to Switzerland’s political and economic stability, its neutral stance, and a sound financial system.

Schlegel said that it is precisely because the situation in the Middle East has deteriorated that the Swiss franc’s appreciation pressure has become noticeably stronger in the recent period. This pressure comes not only from safe-haven capital inflows, but also relates to interest-rate spreads between Switzerland and other major economies. Currently, Swiss interest rates are significantly lower than those in the United States and the euro area. A low-interest-rate environment should normally weaken the Swiss franc’s attractiveness, but safe-haven demand still dominates, causing monetary conditions to tighten in practice.

The Swiss central bank governor also reminded that while Swiss franc appreciation can temporarily suppress import-driven inflation, if the appreciation magnitude is too large and the pace too fast, it will significantly restrain domestic economic activity. Switzerland has a highly open economy, with exports accounting for a large share of GDP. Every 1% appreciation in the Swiss franc could create visible pressure on the manufacturing and tourism sectors.

Greater flexibility in Swiss central bank policy tools, and negative rate options still exist

In his speech, Schlegel reiterated that the Swiss central bank’s primary mission is to maintain price stability. To achieve this goal, the central bank can use both interest-rate policy and foreign-exchange intervention.

At present, although negative interest rates—once an effective measure in history—are no longer the first choice, they have not been completely ruled out. In the past, negative interest-rate policies did indeed effectively reduce the Swiss franc’s appeal and ease appreciation pressure, but they also brought side effects such as real-estate bubbles and impaired bank profitability. Because of this, the central bank prefers to achieve its policy objectives primarily through foreign-exchange intervention. It is worth noting that the Swiss central bank has recently clearly stated that its willingness to intervene in the foreign exchange market has increased significantly compared with earlier. This change has been interpreted by the market as an adjustment in the policy focus: with interest rates approaching the lower bound below zero, foreign-exchange intervention will become the main weapon to counter excessive Swiss franc appreciation.

Impact on the Swiss economy and global markets

For Switzerland domestically, this stance by the Swiss central bank can help stabilize market expectations and prevent the Swiss franc from experiencing runaway appreciation in the short term, thereby giving export-oriented firms some breathing room. At the same time, combining low interest rates with potential intervention is expected to continue supporting domestic credit growth and economic recovery.

From a global perspective, the Swiss central bank’s preparations also reflect the fragility of the current international financial environment. The Middle East conflict affects not only the energy market but also transmits risk sentiment into the currency markets through safe-haven behavior. In times of crisis, the Swiss franc’s safe-haven attribute is often amplified. As the role of the “buyer of last resort,” the Swiss central bank can help smooth out extreme volatility and maintain global financial stability.

However, analysts also caution that foreign-exchange intervention is not a cure-all. If the Middle East conflict becomes prolonged and oil prices remain elevated, the risk that global economic growth slows will still put pressure on open economies, including Switzerland. The Swiss central bank stated that it will continue to closely monitor developments and, when necessary, adjust monetary policy to ensure mid-term price stability.

Summary: Flexible intervention to maintain stability

The Swiss National Bank Chairman Martin Schlegel’s latest remarks clearly convey the central bank’s firm resolve to maintain currency and price stability in the current complex environment. By increasing its readiness for foreign-exchange intervention, the Swiss central bank aims to balance the contradiction between safe-haven demand and economic competitiveness, providing strong support for the Swiss economy.

With global uncertainty rising today, this policy signal is not only significant for Switzerland’s financial markets, but also provides a reference for other small open economies.

In the future, the trajectory of the Swiss franc will depend on how the situation in the Middle East evolves, the global interest-rate environment, and the actual level of intervention by the Swiss central bank. Market participants need to continue monitoring the Swiss central bank’s subsequent actions in order to seize potential opportunities for investment and risk management.

Swiss franc per USD daily chart Source: YiHuitong Beijing time March 25 13:37 USD to Swiss franc Quote 0.7894/95.

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