The surge in risk aversion that hit markets at the beginning of the week has accelerated the Swiss Franc's rally, countering expectations of additional rate cuts and prompting calls for the central bank to intervene more actively to temper its gains.

The Franc soared to its highest level against the Euro in nearly a decade at the start of the week, following its strongest week since the Russian invasion of Ukraine in early 2022. 

By Wednesday, Switzerland’s largest manufacturing lobby group urged the Swiss National Bank (SNB) to take swift action to prevent the Franc’s strength from negatively impacting exporters and jeopardising the economic recovery.

Fears of a potential US recession, heightened geopolitical tensions, and a dramatic shift in Japanese markets have renewed the Franc's appeal as a safe haven for investors seeking stability during periods of uncertainty, Swiss Info reports.

Despite the likelihood of a third consecutive rate cut from the SNB in September, long-term investors and speculative funds remain eager to invest. Many who had borrowed the Franc to sell it in favour of higher-yielding currencies are now unwinding those positions, as the Franc’s appeal as a safe haven grows.

Simultaneously, it’s unclear whether the central bank needs to take more drastic measures to limit the Franc’s gains. 

Current data indicates that the strong Franc isn't causing the kind of inflation slowdown that could negatively impact the economy. 

Consequently, Geoff Yu, senior strategist at Bank of New York Mellon, suggests that substantial currency intervention is unlikely.

“I don’t see any clear sign that the Franc’s gains are done yet,” he said. 

Despite the Franc appreciating by approximately 5% since May, clients at BNY still hold underweight positions in the currency. Geoff Yu noted that “the path of least resistance” suggests the Franc may continue to strengthen.

Markets are fully anticipating a 25-basis point cut from the SNB on 26th September, with roughly a 60% chance of an additional reduction in December, according to swaps.

This would lower the official rate to 0.75%, positioning Switzerland as the most aggressive rate cutter among developed central banks.