The CHF has continued to depreciate this week falling by a further 1.5%. It has now fallen nearly 4% over the last 30 days and 6.5% in the last 60 days. The table below shows the market movements for the GBPCHF exchange rate in the last month:
|Currency Pair||% Change||Difference on £200,000|
The Swiss Franc has a reputation for being a safe haven currency meaning that it is often purchased during times of financial uncertainty. Over the last decade and through the financial crises this demand for the currency has put the Swiss National Bank (SNB) under considerable pressure as it impacted its business and citizens as the costs for exporting and importing changed significantly. This led the bank over to try to actively weaken the CHF by buying foreign assets and selling the CHF on mass. After the SNB gave up trying to hold its value at 1.20 against the Euro in January 2015, it fell to 0.86 within a matter of hours causing lots of issues globally including speculative investment companies going bankrupt. Since then CHFEUR have been creeping up and reached over 1.20 again back only last week. This recent round of depreciation for the Swiss Franc means the SNB can take a break from this policy so will be welcome news.
One of the ways with which this was achieved by the bank was down to the introduction of one of the loosest monetary policies strategies in Europe by the SNB. Switzerland banks actually pay their clients to borrow money as interest rates stand at -0.75%. As capital normally mounts in the region with the biggest return this policy by the SNB resulted in a real reduction in clients amassing capital in Switzerland and therefore weakened its demand.
With CHFEUR rates now reaching the historically ‘preferred range’ for the SNB, arguments have started to mount that this time of ultra-low interest rates may come to an end. It is this topic and speculation which will continue to have an underlying impact on the value of the CHF longer term I think. My personal view however that as this policy was the only one which has allowed the currency to reach these levels plus the fact that it has taken over three years to achieve they will be incredibly cautious to change it. Personally I don’t see a change in the foreseeable future in this policy but it is certainly something to be kept aware of if you have a long term exposure to the CHF.
Moving forward I expect the CHF to be driven by global factors so continue to keep an eye on US-Russia-Syria-China relations for any indication in a change in global risk appetite. The North South Korean meet today could easily have an impact.
Outside of that domestic data from Switzerland is light in the coming days. Wednesday is the next key day with Retail figures and Purchase Managers Index figures released. Both have been showing further contraction recently and this tone is expected to continue resulting in the GBPCHF likely to continuing to improve over the coming 7 days.
For more information on how future data releases and events could affect the Swiss Franc, call our trading floor on 01494 725 353 or email me here.