Currency markets showed modest moves as analysts at Morgan Stanley reiterated a bullish view on the Swiss franc, which the bank characterizes as an underappreciated safe-haven asset with scope to strengthen materially from current levels.
At 06:30 ET (11:30 GMT), USD/CHF was trading down 0.1% at 0.7756, while EUR/CHF was up 0.1% at 0.9147.
In a note dated Feb. 23, Morgan Stanley evaluated the behavior of widely cited safe-haven assets in episodes of severe market stress and concluded that outcomes are not uniform across assets. Looking across bonds, the Japanese yen, the U.S. dollar and gold, the bank judged the Swiss franc to have the broadest record of positive performance across different types of shocks.
According to Morgan Stanley, the franc stands out because it is "the asset most likely to hold its value under the widest set of circumstances," and the bank emphasized that the currency offers distinct advantages for the risks investors are currently focused on - namely inflation and currency debasement, fiscal soundness, and protections for investor assets.
The note further argues that market participants may be underestimating two key elements: the franc's safe-haven utility and the structural case for CHF appreciation. Morgan Stanley wrote, "we think investors underestimate the SNB's current willingness to tolerate CHF strength," and added, "We think the SNB may be more willing to tolerate CHF strength so long as said strength does not compromise the outlook for inflation."
The bank quantified its view on exchange-rate levels, stating it sees EUR/CHF at 0.87, implying a roughly 5% decline versus current levels and contrasting with prevailing expectations of CHF weakness. It also highlighted a downside risk for the dollar, noting that USD/CHF could fall to 0.64 under a USD 'bear case' scenario and saying markets may be underpricing the franc's qualities as a "gold-like" hedge.
Those assessments suggest a potential re-rating of CHF exposures across currency portfolios and risk allocations if the scenarios outlined by Morgan Stanley gain traction.
Context and implications
The bank's analysis centers on measured comparisons across traditional safe-haven assets and places emphasis on the franc's ability to perform across varied shocks rather than in any single scenario. Morgan Stanley's stance highlights the interaction between monetary policy tolerance for currency strength and inflation dynamics as a key determinant of how far CHF appreciation could proceed without policy pushback.
Investors and market participants monitoring currency risk and asset protection strategies are likely to view this analysis as relevant when sizing exposure to the Swiss franc and related instruments.