Swiss Franc Remains the Best Performing Currency of 2020

Swiss Franc Remains the Best Performing Currency of 2020

21 October 2020

The Swiss Franc remains the best performing major currency of this year, even though it has periods of underperformance on intraday basis, like last Friday. The SNB is likely to intervene again to keep EUR CHF above low levels.

Swiss Franc is Well-Valued

                This year the Swiss Franc has performed great against all major currencies. The same case was last week, when it ended it with higher exchange rate versus almost every other major currencies, expect the Japanese Yen, which is also safe-haven currency, and the Australian Dollar, that is gaining on investors’ mood for risky assets, as stock markets are recently on the rise. The Euro has fallen against the Swiss Franc to a point of three months low. Briefly it went below 1.07, threating an important benchmark of 1.0675, a 200-day moving average, before returning above at the end of Friday’s trading.

What is Next for euro exchange rate?

                As of now, even though euro exchange rate is still a bit off from 1.05 threshold, which is considered by markets as a point at which the Swiss National Bank would intervene heavily, still there is serious risk the exchange rate of EUR will keep worsening. Investors have bad approach to European single currency now, mainly due to second wave of coronavirus. Economists predict that euro exchange rate will only recover to 1.10 exchange rate by the end of next year. In long-term many experts see the level of 1.10, even 1.12 being reached, but short-term perspectives are quite bloom for the single currency.

Will There Be Further Interventions?

                Rising stock markets might not be enough to stop euro exchange rate from hitting new lows, which mean further intervention from the SNB might be needed to keep Swiss Franc from getting too strong. Overvalued Swiss Franc is bad for Swiss economy that heavily relies on export. The pressure on the SNB to intervene might even be higher with new restrictions introduced due to growing cases of coronavirus. Another, even partial lockdown of the economy, will hurt business and households’ activity. Economists predict that the SNB will likely intervene if that is what the market needs with growing pressure on euro exchange rate. They also think such interventions will stop Euro from plummeting further and manage to keep euro exchange rate above the so important 1.05 level. Still, they foresee that only containing the pandemic will make EUR CHF ready for some recovery.

No one Expects Weaker CHF

                Markets almost fully expect that the SNB’s interventions on foreign exchange rate market will be successful, and that the CHF can be stopped from getting too strong. At the same time, no one sees it getting weaker by much and just on its own, without the SNB’s help. The policymakers of Swiss bank are positive that interventions are much needed and will not cause irreversible damage to the country’s currency. Last week at the Progress Foundation in Zurich Thomas Jordan, the chairman of the executive board at the SNB, defended the central bank’s policy and stated that the SNB always can sell the newly acquired foreign currency back to the market and buy Swiss franc to cancel the effects of interventions.