Will the strong franc now become weaker?

This has not been the case for long: the Swiss franc is also showing weakness against the euro. While a euro was still worth 0.95 francs at the end of September and had a record low against the hardcore Swiss currency, the single currency is currently heading back towards parity. This means that for one euro there are exactly one franc.

This has to do with record high inflation in the eurozone. This was 10.7 percent in October – which has never been the case since the introduction of the euro. After a long hesitation, a wake-up call was issued to the European Central Bank (ECB). The ECB raised the key interest rate by 0.75 percentage points to 2 percent at the end of October. More rate hikes will have to follow. Unlike Switzerland and the US, there are still no signs of a reversal in inflation in the euro area.

The next step in December

However, there’s little to suggest that the pan-pan euro shine will last long: “It’s not a wave of speculation against the franc,” says Thomas Flury (57), currency specialist at UBS. “It’s more of a sign of disorientation.” Even before the Swiss National Bank (SNB) last raised interest rates to 0.5 percent in September, hedge funds had backed the franc’s strength.

Since the next rate hike in Switzerland will last until December, some caution is required on this side now, as interest rates are rising everywhere. “There will only be a marketing impulse for a stronger franc at the next monetary policy assessment,” Flury was convinced.

To what extent the SNB will continue to raise interest rates in Switzerland is an open question. But this again reduces the so-called interest spread to the euro area, which in turn strengthens the franc. Also, it is still attractive for investors to invest their money in Switzerland. With an inflation rate of only 3 percent, currency devaluation is significantly lower than in Europe or the United States. This means that in the medium term the euro is more likely to fall to 0.95 francs than to break the pair sustainably.

dollar will weaken

The same goes for the USA. Although a trend reversal can be observed here, inflation was 8.3 percent in September, considerably higher than Switzerland. The franc has been weakening against the dollar for a while as the US economy is in full swing. It is so powerful that there is even a risk of overheating. This is one of the reasons why further rate hikes by the US Federal Reserve are expected.

If the US economy (intentionally) cools, that should re-strengthen the Swiss franc against the dollar in foreign exchange markets. A dollar is currently worth 1.01 Swiss Francs, but may soon be a few inches less.