Introduction to Global Currency Markets
The world of global currency markets can be complex and unpredictable. Recently, the Swiss National Bank (SNB) has been in the spotlight due to its interventions in the foreign exchange market. In the second quarter of 2025, the SNB purchased 5.06 billion Swiss francs (equivalent to 6.36 billion dollars) in foreign currencies, marking the highest level of quarterly interventions in the past three years.
The Swiss Franc: A Safe Haven
The Swiss franc is considered a safe haven asset during times of financial and geopolitical uncertainty. This means that when there is turmoil in the world, investors often turn to the Swiss franc as a stable and secure investment. In April 2025, the Swiss franc rose by 7% against the US dollar and by 2.2% against the euro. This movement was attributed to inflows into the franc, as investors sought a safe haven from the uncertainty caused by the announcement of new tariffs on U.S. imports by President Donald Trump.
The SNB’s Strategy
The SNB’s primary objective is price stability, defined as an annual inflation rate between 0 and 2%. A strong appreciation of the franc risks compromising this objective, making imports more affordable and thus lowering pressure on domestic prices. To combat this, the SNB intervenes by purchasing foreign currencies and injecting francs into the market, in an attempt to curb the rise of the national currency. In the second quarter, the SNB’s activity in the foreign exchange market stood out significantly compared to the previous five quarters, when foreign currency purchases had been much more limited.
Challenges for the SNB
The current situation places the SNB at a difficult crossroads. On one hand, further interventions in the foreign exchange market risk attracting negative attention from the United States, especially after Washington included Switzerland on the list of countries monitored for unfair currency and trade practices. On the other hand, the alternative would be to bring interest rates below zero, a move the SNB would prefer to avoid. As Charlotte de Montpellier, economist at ING Bank, pointed out, "the SNB is currently facing two bad options. Either it makes more interventions in the forex, which would attract negative attention in the United States, or it brings interest rates below 0%, which it actually does not want to do."
Relations with the United States
The currency issue remains delicate on the diplomatic front as well. Last week, the president of the SNB Martin Schlegel reiterated that the central bank will continue to use all tools at its disposal, including currency interventions, to achieve its inflation target, if necessary. However, the SNB and the United States Department of the Treasury reaffirmed that they do not intend to manipulate exchange rates for competitive purposes. This statement comes after Washington added Switzerland to the list of countries under observation for possible unfair currency practices in June.
An Evolving Scenario
The situation remains fluid, and the role of the SNB is confirmed as central in the attempt to maintain the stability of the franc and the Swiss economy. The effects of the tariffs imposed by Trump have once again demonstrated how much U.S. trade policy decisions can have global repercussions, especially on currencies considered safe like the Swiss franc. The SNB thus finds itself having to balance the need to avoid an excessive appreciation of its currency with the risk of being accused of currency manipulation by the United States.
Conclusion
In conclusion, the Swiss National Bank is facing a challenging situation in the global currency markets. The SNB’s interventions in the foreign exchange market have been significant, and the bank must balance the need to maintain price stability with the risk of attracting negative attention from the United States. As the global economic landscape continues to evolve, the SNB will likely continue to play a crucial role in maintaining the stability of the Swiss franc and the Swiss economy. The Swiss franc will likely remain a safe haven asset for investors, and the SNB will need to be vigilant in its efforts to ensure price stability and the solidity of the Swiss economy.
