It’s been a shocking start to the fourth quarter for the Swiss franc. Of the 17 trading days so far in April, only 5 have been kind enough to grant the Swiss franc gains against the euro, which now buys Fr1.147 for the first time since October. If the month ended now, we’d be looking at the worst monthly performance by Switzerland’s currency since the summer of 2017. At the end of March, the euro bought only Fr1.116.
Against the dollar, the franc is faring even worse. Tuesday afternoon’s exchange rate of Fr1.023 per dollar marked the franc’s lowest level against the greenback in more than two years; a month ago it was resting at Fr0.99.
Only three weeks ago, financial journalists were reporting a pick-up in bets on franc appreciation. “Wagers on further [franc] gains in the options market have climbed to the highest this year,” Bloomberg wrote on April-2, citing a trend among options traders that has now completely reversed.
While holders of francs will be disappointed with recent developments, policymakers at the Swiss National Bank will be anything but. They have long hoped for a weaker currency which they believe can spark inflation in the economy. Inflation in Switzerland is running at a dismal 0.7 percent annually, which pales against the European average of 2 percent (using data from the UK, eurozone, Norway and Sweden). The SNB already upholds the world’s lowest interest rate (-0.75 percent) as part of its efforts to increase pressure on prices, but it has said as recently as Friday that even lower rates are possible.
The franc’s recent slump appears to reflect improved sentiment towards the global economy. As a safe haven, the franc typically gains value during tough times and sinks when investors gain confidence — the sort of confidence that comes from a 6-month Brexit delay, no enhanced tariffs on Chinese or US goods, and much-improved economic data.
Though depreciation at this rate is unlikely to continue, the underlying trend of franc weakness should persist, at least in the opinion of Manuel Oliveri, a foreign exchange analyst at Credit Agricole. On Tuesday, Oliveri predicted a 12-month rally in EUR/CHF back to the symbolic level of Fr1.2 — the level at which the SNB capped the franc’s value prior to “Francogeddon” in January 2015, and 2018’s exchange rate high.
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