Record level against the euro: The franc strengthened due to the crisis in the Middle East

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Before the weekend, the euro had fallen to a record low of 0.9456 francs against the franc; currently it is only slightly higher, about 95 centimeters.

As is well known, when it was introduced more than 20 years ago, or before the start of the 2007/08 financial crisis, the euro cost over 1.60 francs, but has depreciated almost continuously since then. The minimum exchange rate for the euro even briefly dropped to 85 centimeters when it was abolished by the Swiss National Bank (SNB) in January 2015; However, it is controversial whether the trade was actually carried out with this exchange rate.

Accordingly, the price of approximately 95 kuruş reached in September 2022 in connection with the Ukraine war was considered the lowest value to date. However, on Friday, prices have now fallen below this.

Risky investments due to Middle East conflict

“The strength of the franc is a result of geopolitical developments in the Middle East,” Commerzbank currency analyst Antje Praefcke said in response to a question from AWP news agency on Monday. Risk aversion increased last week. “This means that money is flowing into safe havens such as the US dollar, gold and also the franc,” says the expert.

What happens next will likely depend largely on what happens there. Typically, risk-off periods (i.e., periods when risky investments are sold) are fairly short-lived. “But as long as the Israeli army’s ground offensive is still pending and it is unclear how Arab states will respond, it is probably too early for normalization.”

Prolonging the crisis could further strengthen the Swiss franc

UBS foreign exchange expert Thomas Flury also sees the reason for the franc’s strength in the Middle East, as there is no reason for the move based on data or the SNB. He also believes that developments will largely depend on the course of the conflict. The worst-case scenario for Flury would be for the crisis to spread geographically. “If more countries are drawn into the conflict, that will further increase uncertainty and strengthen the franc,” he says.

Meanwhile, St. Thomas Stucki, chief investment officer at Kantonalbank Wales, is not so pessimistic. He sees no reason, at least for now, for the franc’s current strength to extend into a more prolonged phase. “Political events increase short-term fears,” he said. However, if they significantly change the outlook for the global economy, they could leave a lasting impact on financial markets. But the Middle East region is too economically insignificant for this.

The region has an economic policy advantage solely through the export of crude oil and liquid natural gas. For this to happen, the conflict must spread to Iran, Saudi Arabia or Qatar. “But so far there is no sign of that,” says Stucki. (SDA/sak)

Source :Blick