Swiss franc will remain strong in 2024
Published: Friday, Dec 15th 2023, 11:10
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Anyone betting on a weakening of the franc in 2024 is likely to be disappointed. The vast majority of currency experts agree that the franc will continue to strengthen in the coming year.
Although there could be small short-term corrections, experts believe that the Swiss currency will once again prove its strength over the next 12 months in view of geopolitics and economic developments.
This year, the outbreak of war in the Middle East initially caused investors to flee to safe havens. This sent the euro/franc pair towards a record low of 94 centimes. The US dollar had already reached its lowest level below 86 centimes in the summer. The euro was only briefly above parity at the beginning of the year, while the US dollar never did so in 2023.
The financial markets are also talking about the strongest currency in the world. After all, the appreciation of the franc has been going on since "Bretton Woods", as foreign exchange consultant Thomas Gangl from Valiant Bank says.
Swiss franc as a safe haven currency
There are many reasons for the current strength of the Swiss franc. And they are not the same for all currency pairs, emphasizes foreign exchange expert Claudio Wewel from Bank J.Safra Sarasin. For example, the dollar/franc pair is particularly sensitive to differences in interest rate dynamics. This is less important for the euro/franc pair; "risk sentiment plays a much more important role here."
According to Daniel Lüchinger from Graubündner Kantonalbank (GKB), the numerous uncertainty factors over the course of the year also ensured that the franc once again benefited from its function as a safe haven. "With the war in Ukraine and in the Middle East, geopolitical uncertainties have increased significantly - there is no sign of these uncertainties subsiding any time soon."
Structural reasons
There are also structural reasons for this attraction. The most important of these is probably the current account surplus, which leads to a positive valuation of the currency and a tendency to buy Swiss francs, explains Gangl from Valiant. "This and the fairly open economy result in low inflation compared to other currencies."
Added to this is the political system, which is often perceived as sluggish and laborious and is based on consensus, which, together with neutrality, ensures a stable, predictable state. "All of this attracts money and companies, which keeps up the upward pressure."
Added to this is the Swiss National Bank (SNB), which has sold foreign currency in recent months - thereby strengthening the franc. In the first six months alone, it sold more than CHF 70 billion worth of foreign currency.
However, at their most recent monetary policy assessment, the monetary authorities declared that selling foreign currency would no longer be a priority. Although they will continue to intervene if necessary, they will also allow a certain degree of volatility, announced SNB Chairman Thomas Jordan.
In fact, the strong franc has been very beneficial to the SNB. This is because the strong domestic currency ensured that the sometimes exorbitantly high inflation was not imported from abroad. However, this strong nominal appreciation now makes further interventions superfluous, said Jordan.
Stability speaks for appreciation
Experts agree that the overall picture is likely to remain strong in 2024. "In our opinion, the euro/franc pair should maintain its comfortable distance from parity," predicts Wewel from Sarasin.
One of the reasons given by the foreign exchange expert is global bond yields, which are likely to fall in 2024 as soon as the markets once again rely on interest rate cuts by the US Federal Reserve. The narrowing of the current interest rate differential to other currencies should then have a positive impact on the franc.
Lead Firmen
The downside of the persistently strong franc is the constant burden it places on export-oriented companies in particular. "The strong franc is certainly not helping in the current economic downturn," says Karsten Junius, Chief Economist at Bank J.Safra Sarasin. The manufacturing industry in particular is going through a lean period. "In the medium term, however, the flexible Swiss economy has always shown that it can adapt to a stronger franc. So it always acts as a productivity whip for the economy."
Raiffeisen chief economist Fredy Hasenmaile is somewhat more cautious: "For exporting companies, the economy in the destination country is generally the more decisive factor. But if, as is currently the case, a weak economy in the exporting countries is compounded by a strengthening of the domestic currency, then this cocktail can become a burden for certain companies." Accordingly, complaints about the strong Swiss franc have become louder since the summer.
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