CHF Expected to Weaken in 2023

CHF Price Reflects SNB’s Credibility

As recently the Swiss National Bank has been very confident, the Swiss franc’s exchange rate has remained relatively strong. But this situation might change quite soon, expects economists. Specialists at Standard Chartered claim that CHF exchange rate reflects the credibility of the SNB and as currency upside risk riding on the confident stance of the bank will diminish over time, as will the price of franc. “We expect USD/CHF to trade largely in a narrow 0.95-1.00 range in coming quarters but weaken against the EUR as 2023 progresses, inflation declines and risk appetite is restored. We doubt that intervening to push CHF stronger is the SNB’s preferred outcome but the threat is credible enough as long as inflation is a concern.” Economists also stated that in near future investor won’t be likely to buy Swiss francs and fight its strength: “For the time being investors will likely be reluctant to fight the SNB on CHF strength or use the CHF as the short leg against higher beta currencies. The risk for CHF appreciation is further SNB hawkishness, an unexpected deterioration in EU energy supplies, political tensions within the EU or easing of other geopolitical issues. CHF is likely to remain among the lowest yielders globally so the downside risk would be any risk-positive shock that pushed yields higher globally, leaving Swiss rates behind. The other downside risk is a material improvement in EU energy security or deterioration in Switzerland’s.”

Economic Forecast Downgraded

Meanwhile, next year not only CHF exchange rate shall be lower, but also the economic situation is expected to be slightly worse than previously forecasted. The Organization for Economic Development and Cooperation sees now Swiss GDP up by 2.1% this year, not 2.5%, as previously forecasted. Outlook was lowered mainly due to the ongoing war in Ukraine, that affected economy on a global level. Additionally the demand for Swiss export and domestic products is lower. Also rising energy prices, inflation in general that is above the target of the SNB (in 202 it should be around 2.9%, in 2024 – at 2.5% level) impact the difficult situation of the Swiss economy. In 2023 it would be even worse, as the OECD expects growth in Switzerland of only 0.6%, down from 1.4% expected in previous communication. In 2024, the OECD says Swiss growth will be at 1.4%, recovering from the previous year.