For several weeks the price of the Swiss currency has experienced relatively contrasting developments compared to the major currencies.
A scissor curve
Following Donald Trump’s second victory in the US presidential election, the dollar appreciated against all major currencies, benefiting from an improvement in the economic outlook in the United States and reduced expectations of a decline. rate of the American Federal Reserve (Fed).
The Swiss franc was no exception but its depreciation against the greenback is less than that of the currencies of Switzerland’s other main trading partners (especially the euro). Thus, the strong movement of appreciation of the Swiss franc against the euro that began in spring 2024 has not stopped. In the months to come, these scissor movements could continue: appreciation against the euro but slight depreciation against the dollar.
Political uncertainties in Europe (France, Germany, etc.) and geopolitical risks (Middle East, Russia or China) could thus have a positive impact on the franc.
The Swiss currency should continue to benefit from two important support factors. First of all, the Swiss economy benefits from a structurally high current account surplus, thanks to its trade balance in goods (trading, non-monetary gold but also mainly chemicals and watchmaking). Services (tourism) and labor income (compensation of employees abroad) weighed on the current account. In the second quarter of 2024, the current account surplus amounted to just over 7% of GDP, compared to a deficit of around 3% in the United States and a surplus of 3% in the euro zone.
Then, the Swiss currency could continue to benefit from its status as a safe haven. For example, the currency appreciated by more than 20% against the pound sterling around and after the Brexit referendum; it rose by more than 10% against the dollar during the first months of Covid and by a similar proportion against the euro at the time of Russia’s invasion of Ukraine. Political uncertainties in Europe (France, Germany, etc.) and geopolitical risks (Middle East, Russia or China) could thus have a positive impact on the Swiss franc.
A gap set to last
In this context and given the fragility of the euro zone economy, the Swiss franc should continue to appreciate against the euro and the pound sterling. However, the Swiss National Bank (SNB) could limit the extent of this movement. Given the low level of inflation in Switzerland (less than 1% year-on-year since September), it could indeed continue to reduce its key rates and intervene in the foreign exchange market.
Conversely, the Swiss franc could moderately weaken against the dollar, like other major currencies. Indeed, the robustness of American growth and the inflationary nature of the Republican Party’s program in the United States (increase in customs duties, restriction of migratory flows, tax cuts) could continue to weigh on expectations of rate cuts. of the Fed, working in favor of a strong dollar, including against the Swiss franc.
Thus, in a paradoxical situation, the Swiss franc should appreciate moderately against the euro – despite the interventionist policy of the SNB – but depreciate against the dollar, despite the American trade deficit.
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