Good Euro Swiss Franc Exchange Rate Allows SNB to Take a Breath

Rise of Swiss franc exchange rate at Convenient Moment

                The significant rise of Swiss franc exchange rate versus euro to a highpoint in 20 months came at a convenient moment for the Swiss National Bank, which policy has been under harsh critic of economists and US Treasury. First, at the end of last year, Switzerland has been branded a currency manipulator by US Treasury. Then a couple of weeks ago a group of prominent economists issued an attack on the SNB, stating the bank is not making enough to stoke inflation. The CHF exchange rate has gone up 3% in last fortnight, triggered by shift in investors’ mood. They are preparing for higher inflation, global economy recovery and thus many of them decided to sell Swiss francs and other safe haven assets. The currency crossed 1.10 threshold per euro, leaving the SNB with a much-needed breather while under attack from two sides.

Higher EUR CHF Exchange rate is Positive News for SNB

                The weaker currency can impact Swiss growth and help achieve inflation goal without the need to intervene again from the SNB side. This is good news as other interventions could further anger US administration. With talks between two countries on the currency manipulator label coming soon, interventions could be a difficult topic at a table. The SNB has spent many years trying to stop CHF from getting overvalued and keeping inflation close to its goal. Their main measures in this fight are interventions on foreign currency market and record low interest rate of minus 0.75%. Still, CHF remained very strong, despite the bank’s best efforts.

Harsh Critics

                After December’s blow for the SNB, when Switzerland was announced a currency manipulator, two weeks ago three prominent economists harshly criticized the bank. Stefan Gerlach, a former Irish central bank official, now at EFG International AG, Yvan Lengwiler of the University of Basel, and Charles Wyplosz of Geneva’s Graduate Institute stated that the SNB need to revise the inflation target and adopt new currency policy. It was one of the most powerful critics of SNB’s actions in years.

What’s Next regarding the Euro Swiss Franc exchange rate?

                What’s next for the SNB and the Swiss franc exchange rate? According to experts, CHF can fall even to 1.145 level per euro in the third quarter of the year before it reverses again. But no one is sure whether this bounce back will start a new trend of appreciation of Swiss franc. Inflation has been already negative for more than a year, while economy struggles due to COVID-19 pandemic, and wage growth is poor, the pressure will remain on the SNB to rethink its policy, as the European Central Bank did. The next sign of what to expect form the SNB will be given after March 25, when the bank meets to decide on monetary policy. So far, the pledge to continue with interventions if needed and to keep negative interest rate is expected. Market analysts claim that as of now the SNB won’t do anything and just hope that CHF exchange rate will remain weaker for the time being.