When it was introduced (physically) in early 2002, the euro was still 1.48 francs and rose above 1.60 francs in the following years. Temporarily passati: In mid-2022, the euro exchange rate fell below the pair and hit a record low of 0.9405 CHF at the end of September. It was only in January 2015 that the Swiss National Bank (SNB) raised the minimum exchange rate, after which euro trading fell further. At that time, however, the common currency quickly rose above par.
An important reason for the weakening of the euro is the high inflation gap between Switzerland and the euro area. While inflation in Germany was 3 percent in November, prices in the euro area increased by 10 percent in the last period. Also, the Swiss National Bank (SNB) raised interest rates for the first time in June and has since doubled it. This was followed by the ECB in July. However, economists accuse the country of being too hesitant to fight inflation. In addition, the euro suffers from high debt levels in individual member countries.
If the economy is strong, so is the Euro.
st. A major reason for the euro’s weakness is the ECB’s monetary policy, according to Caroline Hilb, Head of Investment Strategy at Wales Kantonalbank. “The ECB has fallen asleep in the fight against inflation,” Hilb says. So interest rate expectations are lower and inflation is higher at the same time. This combination of monetary policy and rising inflation has suppressed confidence in the euro and thus in the currency. In addition, the debt problem is another reason for the weakening of the Euro. “The common currency and monetary policy has yet to find a recipe to stabilize them.”
In addition, Hilb says that the euro has a “cyclical character”. That means it’s in demand when the economy is booming and stock market prices are rising. If the mood in the financial markets is good, investors are willing to take risks. On the other hand, the euro comes under pressure when stock prices fall, as has been the case recently. At such times, the Swiss franc and the US dollar appreciate. “These are currencies sought in uncertain times,” says the SGKB expert.
More rate hikes? Has “surprise potential”
Thomas Heller, Head of Investments at Belvédère Asset Management, points to another reason for the weak euro. According to him, the eurozone is much more affected by the war in Ukraine than any other region. The conflict also triggered an energy crisis that could plunge the European economy into recession. Hilb adds that, first of all, Germany, the largest economy in money, is lame. Heller, unlike Europe, does not expect recessions in the US and Switzerland.
Hilb says the ECB has proven its ability to act in recent weeks, albeit late, and that should at least stabilize the euro. However, the euro is likely to remain below par in 2023.
Heller says the interest rate spread will widen, as the ECB is now more likely to raise interest rates than the Swiss National Bank due to high inflation. This will support the euro. Heller sums up his forecast as “My expectation for the coming months: sideways movement around current level with potential for upward surprise”.
Euro divers under 92 cm possible
Bank Valiant also activates the weather forecast. Just a few weeks of cold winter weather and energy shortages in Europe could mean the anticipated economic downturn will be even worse.
In such a case, the ECB will likely abruptly stop the rate hike cycle. And this again despite rising inflation. According to Valiant, then there will likely be a “reunification” with 0.9405 francs, the lowest level of the year. It is not unlikely that the euro will even fall below 92 centimeters.
Finally, you look at SNB and foreign currency purchases on Credit Suisse. According to CS, if the franc depreciates too quickly in the eyes of the SNB, that is, if the euro appreciates, the SNB must respond by selling foreign currency. “We are therefore sticking to our negative assessment of the euro with a 12-month price target of CHF 0.97,” sums up Switzerland’s second-largest bank. (SDA)