Mitsubishi UFG Says Easing Of Geopolitical Risks, Central Bank Pushback To Dampen Swiss Franc Strength

10:27 AM EST, 12/30/2025 (MT Newswires) -- The Swiss franc (CHF) has been the second-best performing G10 currency in 2025, strengthening sharply by around 14% against the US dollar (USD) while remaining relatively stable against the euro (EUR), said MUFG.

This has pushed USD/CHF down toward the 0.8000 level, compared with more range-bound price action for EUR/CHF, which has traded between 0.9200 and 0.9500 for most of the year, wrote the bank in its "G10 FX 2026 Outlook" note release on Dec. 19.

The CHF has benefited from a loss of confidence in the United States policymaking, driven by heightened trade policy uncertainty and the Trump administration's repeated attacks on the Federal Reserve's independence, which have raised concerns about upside inflation risks, stated MUFG.

While those inflation risks haven't yet materialized as feared, market participants will closely monitor whether changes at the Fed next year will shift policy focus more towards boosting growth over inflation, which could favor further CHF strength against the USD, pointed out the bank.

Conversely, upward pressure on the CHF could ease if geopolitical risks in Europe diminish. Recent talks between Russia, the U.S. and Ukraine to end the conflict have shown progress.

A reduction in geopolitical risk would strengthen Europe's economic recovery and soften demand for the CHF, added MUFG. It could also trigger another leg lower for European energy prices as the negative shock from the Russia-Ukraine conflict continues to fade.

Lower inflation, looser European Central Bank policy, and Germany's shift toward fiscal easing are already expected to support stronger European growth next year. This underpins MUFG's outlook for the ECB to keep rates on hold in 2026, while the Swiss central bank (SNB) faces greater pressure to loosen policy further.

Inflation in Switzerland is expected to remain well below the SNB's 2.0% target.

Although the SNB is reluctant to return rates to negative territory, it may be forced to act if CHF strength persists and oil prices continue to fall next year, added the bank. If the CHF remains strong, pressure will mount on the SNB to reintroduce negative rates and/or intervene to weaken the currency.

This would make the CHF more attractive as a funding currency if financial market volatility remains low and global growth picks up, according to MUFG.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.