CHF a Top-Performing Currency of 2023

Swiss Franc Top-performing Currency

Swiss franc has been, together with the British pound, one of the top-performing currency of this year, as its exchange rate has gained more than 3% against the euro and the US dollar. Meanwhile versus the Japanese yen, the franc has went up by around 15% with the exchange rate franc/yen hitting new record highs.

Safe-haven CHF

Why CHF has such a good year? It has good exchange rate versus major counterparts due to few factors. First of all, the Swiss National Bank has dropped the record negative interest rate. As they are now positive, global depositors are no longer penalized for stocking their cash in Switzerland. Additionally direct interventions on the exchange rate market made by the SNB were crucial. The central bank of Switzerland has been active in the currency market for long period now, but last year changed its role from a net-seller of francs to a net-buyer, as it tired to strengthen CHF and relieve pressure for the imported inflation. Additionally, it helps that Swiss franc is still considered a safe-haven currency by many investors who decide to buy Swiss francs in times of economic or geopolitical troubles. Also because of Switzerland’s chronic current account surplus, CHF can act like a safe haven instrument.

What’s next for Swiss Franc?

What is next for Swiss franc exchange rate? On one side, worsening economic data in eurozone and whole Europe plus China could mean that CHF exchange rate will appreciate. But on the other side, data for Switzerland shows that its economy is also slowing down. In Q2 GDP growth was up by just 0.5% from a year ago. The very strong Swiss franc has hurt demand for exports. In good news inflation has cooled down, staying below 2% target for a third month in a row. The SNB expects it to stay low in coming months, but it continues to have a close look at it as inflation can reaccelerate next year due to higher rent, electricity prices.

Difficult Choice for the SNB

The main question now remains: will the SNB raise rates again next week? The situation is not easy, as keeping rates unchanged can safeguard economic growth but raising them can further eradicate inflation. Any decision will surely have an impact on the CHF exchange rate. As of now market pricing is leaning towards no hike, with a 60% probability versus 40% for another raise of rates. A decision made on Thursday by the European Central Bank on whether the interest rates in eurozone are raised or not will play a crucial role for the SNB’s action.