The Swiss franc has gained about 4 percent against the U.S. dollar since late February, the best performance among G10 currencies.
Traders in recent weeks have started giving optimistic forecasts about the franc, which has not been seen since September 2021, Bloomberg noted. These changes are due to a projected divergence in monetary policy between the Swiss National Bank and central banks in Europe and China.
The sharp slowdown in economic growth in the euro zone and China strengthens analysts’ opinions that central banks will move to soften monetary policy. Experts also expect similar moves from the Federal Reserve in the not-too-distant future, although mixed economic data do not rule out the possibility of another prime rate hike before then.
“We expect the Swiss franc to rise in line with a multi-year trend,” said Thomas Fluri, head of currency research at UBS Wealth Management. He expects the currency to strengthen in the medium to long term because of the low price pressure in Switzerland and the fact that the country’s central bank is “convinced of the need to fight even this small inflation.” Moreover, “there are also many opportunities to repatriate money that was left outside the country during the period of negative interest rates,” the expert believes.
The franc also remains a safe haven for nervous investors amid worsening geopolitical tensions between the U.S. and China, the agency noted.
The Swiss national currency, like gold, shows good results in the periods when central banks’ monetary policy is stimulating. The franc appreciated 10% during the 2001-2002 cycle of rate cuts by the Fed and the ECB. At the beginning of the 2007-2008 financial crisis it gained 13%. When the Fed lowered rates in 2019-2020, the franc appreciated about 7%.
Long-term estimates of the franc “don’t look overstated at all” after accounting for differences in inflation with other countries, JPMorgan Chase analysts said. They predict a gradual strengthening of its exchange rate by March 2024 by more than 5% against the dollar and more than 4% against the euro.
After fears regarding the US debt ceiling are removed, the franc may weaken against the US national currency by 1-2%, experts say. However, they think this is only temporary negative factor that “is not a problem for our “bullish” strategic view of the franc.
The dollar is trading at 0.9067 francs and the euro at 0.9697 francs on Tuesday.
