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The dollar is weakening. After a temporary peak at the end of 2022, the key currency of the global economy has recently weakened significantly against the Swiss franc. Currently, only 89 cents need to be paid for 1 dollar.
Frank should continue to rise against the dollar. The dollar will still be around 84 centimeters at the end of the year, according to the latest estimates from UBS Switzerland.
Daniel Kalt, 53, chief economist at UBS, explains why: “On the one hand, inflation in the US has been much higher than in Switzerland since the pandemic, meaning that the fair value in the dollar exchange rate – that is, purchasing power parity – is / francs. today it’s under 80 inches.” In addition, the banking crisis and a possible hard landing in the US economy may force the US Federal Reserve to cut interest rates towards the end of the year, which will put pressure on the US dollar. Kalt expects the weakness in the dollar to continue after the end of 2023.
This begs the question: What does this mean for the Swiss economy?
The high franc rate for tourism in Switzerland is problematic, as it makes holidays in Switzerland more expensive for foreign guests. André Aschwanden, spokesman for Switzerland Tourism marketing organization, remains calm: “The dollar has weakened, but the decline is not as dramatic as the euro.” He knows: “Also, guests traveling to Switzerland from the dollar market are generally less price sensitive and hardly react to such exchange rate fluctuations.”
Between January and March, Switzerland registered 441,000 overnight stays in the US market. That’s 14 percent more than the record year in 2019. However, long-distance travel is always booked early, so the effects of the weaker dollar are probably not reflected in these numbers yet.
However, the weak dollar is a boon for foreign trips to the US. On the one hand, on-site ancillary costs, which have become significantly more expensive since the pandemic, are at a reasonable level. Robin Engel, 33, co-owner of North American travel specialist Go2Travel, says: “A weak dollar helps us better meet price increases when purchasing travel.”
The fact that travel to the US is now cheaper is a fallacy: “I don’t expect that until 2025,” says Engel. In 2024, it will be even more expensive, thanks to the strong Swiss franc, but not much more expensive than feared.
The export industry also often suffers from a strong Swiss franc. In 2022, the US export share of goods exports from the technology industry (mechanical, electrical and metal industries) was 14.3 percent. These are goods worth 10.3 billion francs, making the USA the second largest sales market for the Swiss technology industry. If you include other markets whose currencies are tied to the US dollar, the share of exports from the “dollar zone” should be around 20 percent.
However, exports of goods to the USA increased by 3.4 percent in the first quarter of 2023 compared to the same quarter of the previous year. According to Swissmem industry association spokesperson Ivo Zimmermann, member companies evaluate the US market positively: “37 percent expect higher orders from the US for the next 12 months and 42 percent expect orders to remain the same.”
aspect? Zimmermann does not see the dollar weak: “The US dollar, measured by purchasing power parity, is overvalued against the Swiss franc. The current exchange rate is around 90 cents, but purchasing power parity is 76 cents.” Swiss exporters therefore currently benefit from a favorable currency situation. The exchange rate can be expected to adapt to the purchasing power parity over time. However, this may take some time and depends on the interest rate and political developments.
Economist Kalt sums it up: “As long as the franc’s appreciation is only covered by the inflation gap between the US and Switzerland, the effects on the Swiss export economy are negligible.”
If the dollar continues to weaken significantly, this will still dampen the outlook.
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.
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