Weakest stretch in decades: Swiss franc heading for worst quarter against euro in 21 years

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This is not a situation we are used to in Switzerland: The franc has lost more than 5 percent of its value against the euro since the beginning of the year. On Wednesday, the Swiss currency fell to a low of 0.9822 against the euro, a level last recorded ten months ago.

The Swiss national currency has weakened since the beginning of the year, heading for its weakest quarter against the euro since 2003, Bloomberg data show. The franc was also the worst currency among the G-10 industrialized countries this year.

The franc weakened after the Swiss National Bank cut interest rates last week. However, even before the SNB decision, the franc had lost value against the euro and the dollar.

The SNB justified the rate cut with the rise in the Swiss currency in recent years; This created difficulties, especially for the export sector. Last year alone, the franc gained 6 percent against the euro.

Will the franc’s weakness continue?

More: “Over the last two and a half years, the franc has appreciated strongly in nominal terms by almost 15 percent relative to the currencies of its major trading partner, as a result of the increase in global inflation,” Raiffeisen writes in a commentary. In an environment where global industrial demand weakened, real appreciation meant additional negativity for the export sector. “This is why the SNB decided to provide some support to the economy by reducing interest rates,” Koch continued.

Whether the depreciation of the franc against the euro and the dollar will continue until the end of the year largely depends on the interest rate decisions of the European Central Bank and the Federal Reserve. If the two central banks cut interest rates and the SNB does not respond with further interest rate cuts, the weakening of the franc could end.

UBS’s prediction regarding the development of the franc against the dollar is also in this direction. The bank expects the dollar/franc exchange rate to be 0.90 in June, around the current level, followed by 0.88 in September, 0.87 in December and 0.85 in March 2025.

According to Raiffeisen, the franc looks set to remain under pressure for the next few months. “The slowdown in the decline in inflation in the USA and the Eurozone and the resulting decrease in interest rate cut expectations have increased the possibility that the recent weakening of the Swiss Franc is not a short-term fluctuation.”

Source :Blick