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Frank yawns! This week the euro fell to a record low against our currency. The US dollar is also weakening significantly against the Swiss franc. This makes Swiss tourists happy who spend their holidays in neighboring countries or North America.
If you look at the development of the franc against other currencies, you will notice that for the whole of 2023 the franc has increased, or at least not decreased, in most cases. And since mid-December the franc has continued to rise sharply.
What’s going on right now? St. “During the holidays there is very little trading volume in the franc, so individual transactions are now more important and the franc moves stronger,” Thomas Stucki (60), investment manager at Kantonalbank of Wales, explains to Blick. These movements are caused, among other things, by investors who speculated on a weak franc and are now forced to buy the franc at the end of the year.
“There are a lot of technical factors involved, so you shouldn’t exaggerate the strong moves over the last few days,” says Stucki.
Three currency groups, three developments
Stucki examines foreign exchange developments in three groups. On one side, there are the major currencies, which include the euro, US dollar, British pound and Japanese yen, as well as the franc. More than two-thirds of all foreign exchange transactions worldwide are carried out in these currencies.
Compared to all this, the franc has gained significant value. On Thursday morning, one euro was temporarily worth just 0.9287 francs, another low. On January 12, one euro was still worth more than one franc. The US dollar also continued its decline against the franc on Thursday, with its minimum cost remaining well below 84 cents. In March, a dollar was still worth over 94 cents! Sterling has also fallen sharply against the franc and is currently trading at 1,088 francs; On June 19 it was still worth 1.1466 francs.
“The strength of the franc against these currencies is linked to greater expectations that interest rates in these economic zones will fall faster than here,” Stucki explains. As interest rates fall, currency values also fall, so the franc automatically strengthens.
The slowdown in the global economy affects many currencies
According to Stucki, another group consists of “commodity currencies”, including the Australian dollar, Canadian dollar and Norwegian krone. The exchange rate of these currencies is so closely related to major export goods that a decrease in the price of these goods leads to a devaluation of the currency. Take Norway for example: The falling oil price negatively affected the krona, especially in 2023.
There is also a third group of “political currencies”: Stucki includes the Chinese yuan (also known as renminbi), the Russian ruble or the yen. “Both China and Japan are interested in weak currencies to support their export economies,” says Stucki. The franc gained more than 17 percent against the yen in one year. This affects Swiss exporters who export to China and pay their invoices in yuan.
The ruble is now barely traded and has stabilized somewhat between January and August, following a significant decline recently along with the Turkish lira.
The franc has also appreciated recently against currencies such as the Indian rupee, Brazilian real and Emirates dirham. Stucki laughs: “If you want safe value, buy francs.”
The economy can handle a strong franc
But isn’t the strength of the franc a problem? “A strong franc is not a problem as long as inflation abroad is higher than in Switzerland,” says Stucki. He expects the franc to remain strong, but thinks there will be some correction in the recent strong movements at the beginning of the year.
As long as the Frank does not experience strong fluctuations for a long time, its strength does not pose a major problem for the Swiss economy. Stucki concludes: “If the franc appreciates 1 to 2 percent a year against the euro and the dollar, this could absorb the economy.” Stucki does not currently expect the Central Bank to purchase more foreign currency to stabilize the franc.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
