Switzerland’s foreign reserves decreased to $702.9 billion in March from $725.6 billion. This change suggests the Swiss National Bank (SNB) has continued its cautious approach to intervening in the foreign exchange market.
BofA analysts noted that the reduction in reserves should not be interpreted as active selling by the SNB but rather as a result of fluctuations in currency valuations.
The $17 billion fall in foreign reserves marks the largest decrease since March 2024. Despite the initial appearance of a de-risking signal, the decline primarily reflects valuation adjustments, especially due to the Swiss Franc’s rally against the US Dollar, which saw the USD/CHF pair decline by over 7%.
After accounting for these valuation changes, the foreign exchange reserves remained essentially stable, reinforcing the view that the SNB has not been significantly active in buying foreign assets to weaken the CHF.
The analysts suggest that the SNB’s lack of intervention could be attributed to the nature of capital flows. Rather than the usual hot money seeking safe haven status that prompts intervention, there appears to be a trend of Swiss investors moving funds from foreign holdings, particularly in USD, back to domestic assets. This shift is significant given Switzerland’s substantial net international investment position.
The stronger appreciation of the Swiss Franc compared to the Japanese Yen might be partially explained by these repatriation flows. The report anticipates that these flows will be redirected into European asset markets, attracted by substantial fiscal measures.
On this basis, BofA continues to project a higher EUR/CHF exchange rate.
