Euro and dollar down

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Travelers to the US can be happy that the major collapse of the franc did not occur with the Credit Suisse debacle. In the US, economic concerns over the domestic banking crisis have weighed heavily in recent weeks. In this context, the American reserve currency fell to its lowest level in 21 months, depreciating by 4.6 percent against the Swiss franc since the beginning of the year. The dollar is currently at 0.8934 cents against the Swiss franc.

Thomas Gitzel, Chief Economist at VP Bank, sees one of the main reasons for the current weakness of the dollar in the fact that the US Federal Reserve has actually reached the top of interest rates.

Dollar weakness already included in the course

“Although I don’t expect that this year, the next step will probably be a rate cut,” Gitzel said, adding that the prospect of a medium-term rate cut weakens the dollar. ‘We already see it. Therefore, the Swiss franc will trade between 0.88 and 0.92 against the dollar at the end of the year.”

The dollar has already completed most of its downward price action, according to Raiffeisen’s Alexander Koch. “As the price has already dropped sharply, we expect the currency pair to move sideways in the medium-term and forecast a rate of 0.90 cents per dollar over a twelve-month period.”

Strategists at ING Bank argue similarly, but expect the dollar to remain weak in the short term. The Fed is likely to hit the pause button after another 0.25% rate hike in May. Accordingly, a permanent dollar recovery is not expected.

In the medium term, ING currency strategists also remain cautious as a possible US default is not off the table. If the US government, together with Congress and the House of Representatives, cannot find a solution to the budget ceiling, the focus is on the “X” date, when a possible payment default can occur.

ING expects the “X” date to be between mid-July and mid-August and states that interest rates rise markedly around this date. “This could weigh on the dollar in the coming months.”

For those traveling to the US, the scenario mentioned will enable cheaper US holidays beyond spring. However, this need not be constant. At least, hedge fund managers on Wall Street believe the dollar is making a possible, short-term return. According to Bloomberg, after betting on falling prices by shorting the dollar at the beginning of the year, the wave reversed at the beginning of the second quarter. Short positions have decreased speculatively and long positions have increased recently. This means that hedge funds are once again betting on rising dollar rates.

Lower euro for vacationers?

The franc has moved back and forth in a tight range against the euro since the beginning of the year. After the US banking crisis, the euro reached an annual high of 1.0132 francs in mid-January before falling to 0.9702 francs in mid-March, thus maintaining its reputation as a safe haven for a short time.

With the Credit Suisse crisis that broke out two weeks later, the euro rose again to 1.0010 Swiss francs and Europe’s key currency shifted gears towards the lowest level of the year in the last three weeks.

The euro zone currency is currently at 0.9814 centimetres. The bulls and bears seem to be balancing each other out right now. Gitzel thinks that the franc will not be separated from the euro for the rest of the year. “If the euro develops stronger against the dollar, we see the franc against the euro above the 1.02 range at the end of the year.”

Raiffeisen’s Alexander Koch is less optimistic and sees a good chance for the Swiss franc to strengthen somewhat against the euro by the end of the year. The Raiffeisen economist expects the euro to trade at 0.95 CHF against the Swiss franc within twelve months. He justifies this by saying that the interest rate gap between the Swiss franc and the euro will not widen any further, and at the same time, inflation in Switzerland will remain significantly low.

Source :Blick