Swiss Franc: Moderate pass-through weigh on CHF against Euro – Commerzbank

Commerzbank’s Michael Pfister analyses how the Swiss National Bank’s recent shift toward tolerating a weaker Swiss Franc affects inflation and EUR/CHF. Using a structural exchange rate pass-through model based on invoicing currencies, he finds Euro-denominated trade dominates short-term effects and that the 2026 policy stance has modestly lifted inflation, while the SNB is expected to keep rates unchanged and EUR/CHF should benefit over the medium term.

Euro invoicing drives Swiss inflation dynamics

"As we demonstrate below, despite the US dollar’s dominance in world trade, the euro dominates short-term exchange rate pass-through due to the invoicing structure of Swiss imports. After one month, the modelled euro channel is around 3.8 times stronger than the US dollar channel, a difference that remains significant even under extensive robustness analyses. This enables us to quantify the impact of the SNB’s different policy approaches on inflation."

"We estimate the inflationary effect of the franc’s depreciation at 0.18 percentage points after 12 months. This is also relevant given that, in May, we demonstrated just how vulnerable Swiss industry is relative to its competitors in the event of an energy price shock. If the inflationary exchange rate effect is smaller than usually assumed in this case, the situation for industry will be somewhat less severe."

"Compared with 2022, however, the difference is greater. The strength of the Swiss franc at that time reduced inflation by roughly 0.22 percentage points after 12 months. Had the SNB acted this year as it did four years ago, the overall price increase thus would have been 0.4 percentage points lower."

"As our model suggests that imported inflationary pressure is moderate, the interest rate differential between the euro area and Switzerland is likely to persist for some time. EUR/CHF should benefit from this in the medium term. For investors who share this view, the options market currently offers attractive entry points as it provides exposure to the expected exchange-rate move while avoiding the financing costs associated with the interest-rate differential embedded in spot positions."