Despite the turmoil in the global equity markets, the Swiss Franc has remained on a weakening trend since the start of the year. The temporary strength seen in early February on volatility and Fed re-pricing is unlikely to persist. The February fall in EUR/CHF can be explained by the fall in USD/CHF, which was triggered by the fall in USD short rates.

The CHF has already moved some way towards fair value, but there is room for more weakening. Firming inflation on base effects and recovering global industrial commodity prices could weaken the CHF more.

Unlike 2011 and 2012, the SNB is not afraid of intervening in the FX market due to "bubbles", as the housing market has cooled off a lot by now. According to SNB's Jordan, the CHF is still "significantly overvalued". Further action is justified by the stagnating economy and continuous deflation (even core prices are falling at a rate close to 1% y/y).