Swiss franc the cheapest since "black thursday"

Apr 12, 2018 4:27 PM|Marcin Lipka

“The Swiss currency in relation to the euro is the cheapest since mid-January 2015. We have also observed an analogous situation in the comparison to the zloty. What are the chances of continuing the downward trend?”, writes Marcin Lipka, Conotoxia senior analyst.

Marcin Lipka, główny analityk

The last days were a positive surprise for Swiss franc (CHF) loan payers. The Helvetian currency has been losing its value despite geopolitical unrest, threats connected with the trade war and cooling down the sentiment in the stock exchange markets. Where does the pressure on the Swiss franc sale come from?

The risk does not apply to the euro zone

The Swiss franc increases in previous years were mainly due to the risk of the euro zone breakdown. Investors invested capital in Switzerland, knowing that in the case of major perturbations in Europe, they would find there a safe haven to protect their assets.

When fear slowly subsided (the last tension accompanied the elections in France last year), the Swiss franc was losing price along with declining systemic risk for the Eurozone.

Current events (Syria, the tense situation on the Russia - United States line, diplomatic conflicts between Chinese and Americans) do not pose a great economic threat to Europe, and certainly the threat is relatively smaller than in other regions. The capital from the old continent escaping from the Swiss franc seems therefore unjustified at this point.

The central bank keeps its finger on the pulse

The Swiss monetary authority representatives keep their finger on the pulse, so that there is no incentive to unjustified capital flow to the Helvetian currency.

Andrea Maechler, the Swiss National Bank (SNB) member of the board, said in an interview at the end of March with Handelszeitung that if we ended "our expansive monetary policy, positive developments in our economy would be at risk". She also added that the SNB has space to increase its balance. This means that neither the negative interest rates policy nor intervening in the currency market to weaken the franc will be terminated for the time being.

On the other hand, one week ago in Zurich, another SNB member, Dewet Moser, pointed out that the situation in the market is still "fragile" and the central bank must remain "watchful". It was also a signal for the market that investors would not treat the Swiss franc as a safe haven, because they might come across, for example, an intervention in order to weaken it.

Good news for Swiss franc loan payers

The lack of capital inflow to the Swiss franc at the time of the recent rise in global risks and the Swiss monetary authorities’ sensitive attitude may be enjoyed by Swiss franc loan payers. Although today, it is difficult to count on the CHF below 3.00 PLN. However, the willingness of the SNB to keep interest rates at a negative level and suggesting further interventions, may make the EUR/CHF pair break above the 1.20 level. This in turn would mean that the Swiss franc will go down and it will start to be valued in the 3.40-3.50 PLN range.

Apr 12, 2018 4:27 PM|Marcin Lipka

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