Swiss franc expected to be relatively stable against the euro in 2025
Published: Friday, Dec 27th 2024, 11:20
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Shopping in southern Germany and vacations on the Adriatic coast are unlikely to become cheaper for the Swiss in the new year. But not more expensive either. At least when it comes to exchange rates. According to foreign exchange experts, the Swiss franc exchange rate is likely to remain relatively stable.
This forecast may come as a surprise given the exchange rate fluctuations in 2024. In the first half of 2024, the euro initially appreciated due to the prospect of an economic improvement in the eurozone and reached its high for the year at around one franc at the end of May.
However, the European elections in June triggered uncertainty and the downturn began. The sluggish growth in Europe then added to this.
Government failure burdened
Most recently, the failure of the governments in Germany and France put renewed pressure on the single currency, according to Thomas Heller, Chief Investment Strategist at Frankfurter Bankgesellschaft. In November, the euro hit 0.9206, its lowest level since the minimum euro exchange rate was lifted on January 15, 2015.
The franc, which is often used as a safe haven in uncertain times, benefited in this environment. In addition, "domestic fundamental" factors such as low inflation, comparatively low government debt, a buoyant economy and political stability also strengthened the franc.
Francs will remain in demand in 2025
According to the experts, the franc is therefore likely to remain in demand in 2025. A trigger for a recovery of the euro could at best be an easing of the Ukraine conflict or the prospect of more stable government conditions in France and Germany, says Heller. "Otherwise, I see few reasons for a significant appreciation of the euro."
However, Tobias Knoblich, a foreign exchange expert at Raiffeisen Switzerland, says that a lot of negative factors have already been incorporated into the euro/franc exchange rate. However, he does not expect a strong recovery, but rather a slight weakening. "We see the euro at 0.92 francs over the next 12 months."
Shopping tourism still on trend
The weak economic growth in the eurozone, particularly in the core countries of Germany and France, will probably lead to a significantly more expansive monetary policy on the part of the ECB. "From a yield perspective, this speaks against the euro," says Aargauische Kantonalbank.
This means that many Swiss people are likely to continue to cross the border every weekend to shop abroad at low prices. The Federal Council recently raised the tax hurdles for shopping tourism. From January 1, purchases of up to CHF 150 per person will only be exempt from Swiss VAT, instead of the previous CHF 300.
But as long as the franc remains strong and prices in neighboring countries are significantly lower than in Switzerland, this is unlikely to change. What's more, Germany doesn't want to do without shopping tourists either. In 2026, the country wants to make shopping easier with a digital export certificate and the abolition of the 50-euro bag limit, thereby continuing to siphon off foreign purchasing power.
Overvalued dollar?
The situation is different for the US dollar. Although the Fed has also lowered interest rates, at the same time, it has also dampened expectations of interest rate cuts. This briefly strengthened the dollar to over 90 centimes. Currently, however, the dollar-franc pair costs slightly less again. At the beginning of the year, it was still 84 centimes.
Donald Trump's plans as the new US president appear to be inflationary overall and the Fed is therefore likely to have to keep its key interest rates high. "This strengthens the US dollar," says Knoblich. In addition, the economy in the US is still booming, unlike in Europe, as Heller emphasizes.
The dollar could rise towards 0.91 francs in the short term, says Knoblich. In the medium term, however, the dollar is fairly valued at around 88 centimes. In spring, the dollar even temporarily cost a good 92 centimes.
Better to wait and see for city trips in the USA
The dollar is overvalued, according to AKB. Budgetary and trade balance challenges are likely to limit the greenback's appreciation potential in the medium and long term.
"For Swiss consumers, this means that beach vacations on the Adriatic are unlikely to become any cheaper due to the exchange rate. When booking a city break in the USA, on the other hand, it might be worth waiting a little longer," says Knoblich, summarizing his forecast.
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