What did we write last week on the day before the Swiss National Bank’s interest rate decision? The franc with the end of appreciation in the big picture? The Swiss franc is now experiencing its longest losing streak in nearly half a century. The franc fell as much as 0.3% today to 0.9151 to the dollar, its weakest level since April. The Swiss currency has fallen each of the past 11 days, putting it behind its longest losing streak since 1975.
Surprising thing resolution The Swiss National Bank’s (SNB) decision last week to halt monetary policy tightening (no interest rate hike was unexpected) has sparked interest in borrowing the Swiss franc to invest in higher-yielding currencies, according to Bloomberg. This ended the rally that had made the Swiss franc one of the world’s best-performing currencies earlier in the year.
“Given that monetary policy expectations are unlikely to change again in the near future, we believe the Swiss franc is an ideal financier for carry trades in the G10 and emerging markets,” Lefteris Farmakis, FX strategist at Barclays, wrote in a letter.
Since reaching its peak at the end of July, the franc has lost 6.6% of its value against the dollar. Compared to the euro, the decline is less by about 1.6% over the same period. Recent sales in the Swiss franc have highlighted the difference between borrowing costs in Switzerland, where they stand at 1.75%, and in the United States, where interest rates have risen to 5.5%. The gap with the eurozone is also large, with the European Central Bank raising its deposit rate by another quarter point to 4% at the start of the month (4.5% for the prime interest rate).
“The Swiss franc is still suffering from the impact of the SNB’s decision last week,” said Roberto Cobo Garcia, head of G10 foreign exchange strategy at Banco Bilbao Vizcaya Argentaria SA in Madrid. “Low yields, overvaluation and less central bank intervention should mean a weaker franc going forward.” Cobo Garcia expects the Swiss franc to test parity with the euro and fall to around 0.94 against the dollar in the fourth quarter.
FMW: We have been seeing the movement of the US dollar and the euro against the Swiss franc in the chart since August 2021. Finally we see the appreciation of the two against the franc (curved red arrow).
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