SNB Pegs the Franc to the Euro at 1.20

The SNB declared the franc massively overvalued and set a minimum exchange rate of 1.20 per euro, committing to unlimited interventions. The move followed safe-haven inflows that had driven EUR/CHF briefly near 1.00 and pushed Swiss CPI into deflation. Markets immediately tested the floor; the pair surged from the low 1.10s toward 1.20 as the central bank signaled size and speed. Swiss yields fell further into low territory as the policy anchor shifted to the exchange rate.

The peg altered regional FX dynamics. Safe-haven demand rotated into the dollar and yen while euro volatility compressed at the short end. For corporates and investors with franc liabilities, planning horizons improved as the SNB capped appreciation. Policy credibility rested on balance-sheet expansion and tolerance for a larger reserves portfolio. We expected the bank to manage inflows across time, sterilizing as needed and tightening macroprudential tools to offset imported easing.

We adjusted client currency exposures accordingly. We reduced structural CHF longs that had served as risk hedges and redeployed into dollars and selectively into Scandinavian FX with tighter hedges. For euro-denominated assets, we lifted hedge ratios to protect against renewed sovereign stress while recognizing the peg’s dampening effect on spot. We kept optionality via out-of-the-money options in case of asymmetric tests of the floor.

Fixed income allocations in Switzerland tilted toward high-quality corporates, benefiting from lower funding costs and policy support. We avoided chasing yield in peripheral Europe until bank balance sheets and sovereign programs clarified. In multi-asset portfolios, we embedded the peg as a scenario, modeling reduced CHF volatility but maintaining stress paths for regime breaks. The aim was stability without complacency around a policy line in the sand.