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CHF Exchange Rate Off to a Good Start in 2023

CHF Exchange Rate Off to a Good Start in 2023

January 12, 2023

CHF Exchange Rate Up
Swiss franc turned out to be the big winner among major currencies in the first two weeks of 2023. CHF exchange rate was outperforming comparing to euro, US dollar or British pound. EUR/CHF was vastly overvalued according to experts, the same as USD/CHF, when looking at levels from January 2022 discounted by the latest interest rates and inflation reading. The fair value of EUR/CHF, according to economist should be now in range between 0.9487 and 0.9692. Both the Swiss franc and euro have strengthened vastly in this first few days of 2023. CHF additionally rose versus majority of other currencies in first week of 2023 after inflation went down further than expected in December. 

The SNB To Stop Interventions for Now
Lower than expected inflation in December should be highly appreciated by the Swiss National Bank, as it supports CHF value and mean no additional intervention are needed from the bank. In recent months the SNB has been intervening in the currency market as it was trying to curb inflation and prevent CHF exchange rate from weakening. Stronger CHF means lower inflation pressures. Still inflation could remain at level from 0% to2% above the target until 2024 if no further action is taken by the central bank. "The SNB has a clear strategy to shield Switzerland from imported inflation, and inflation rates are still quite high in its main trading partners' economies. One element of tightening has been steady appreciation of the nominal Swiss franc. The SNB has done that quite successfully in 2022. Strong CHF appreciation has not led to complaints by exporters or the tourism industry the same way it did in earlier appreciation cycles" says Thomas Flury, an FX strategist at UBS Global Wealth Management. Experts claim that with the newest reading of inflation and strong CHF exchange rate now further interventions on foreign currency market should be expected, if the SNB sticks to its policy. However, the trend might be reversed in January’s inflation and after December’s 0.2% fall, we can see rise again. With a risk of inflation rising again in next months, the SNB might come back to interventions to further bolster CHF, even though lates data suggest the franc is already overvalued.
 

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