Swiss Franc (CHF) Exchange Rate Strength May Damage Exports in Slow Repairing Global Economy
The Swiss Franc broke through the 1.1208 barrier against the US Dollar on Thursday as it staged an impressive advance against the ‘Buck’.
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The US Dollar looks set to weaken in response to statements from the Federal Reserve’s Chairwoman Janet Yellen, who yesterday announced a cut in the stimulus package of $10bn a month – taking the level of asset purchases to $35bn a month.
The fact that Yellen also restated the central bank’s commitment to keeping interest rates at record lows saw the US Dollar soften and boosted the Swiss Franc. The Franc is also climbing against the Yen.
Thursday has seen the release of the Swiss National Bank’s interest rate decision. The central bank opted to keep interest rates the same at 0% (in line with forecasts) and this move also gave cause for the Swiss Franc to rise.
However the SNB also reiterated its previous vow not to allow the Swiss Franc to strengthen beyond 1.20 in relation to the Euro.
A strapping Swiss Franc could cause a lull for Swiss exporters within the EU; therefore the SNB have been vigilantly examining exchange rates.
The Swiss National Bank stated: ‘The SNB will continue to enforce the minimum exchange rate with the utmost determination. If necessary, it is prepared to purchase foreign currency in unlimited quantities for this purpose, and to take further measures as required.’
Despite other currencies floundering, the Franc looks to remain positive in the face of Switzerland’s resilience, with a predicted GDP growth of 2% by the end of the year.
The Euro is set to begin to rise in the foreseeable future—after a weak period following the ECB interest rate cuts—which will by proxy support the Swiss Franc.
The Swiss have also enhanced their previous predictions of an inflation rise from 0% to 0.1% in 2014, followed by 0.3% in 2015, and 0.9% in 2016.
The SNB remains confident: ‘Consequently, there are no signs of any inflation risks in Switzerland in the foreseeable future.’
However, the recovery for global economy has been a slow one with the Eurozone especially struggling to balance their economy.
The SNB commented: ‘The global economy should firm over the coming quarters, but economic developments will remain subdued by historical standards.’
The Swiss Franc looks to be stable for the time being and the release of the annual stability report was accompanied by favourable data showing notable progress regarding capital positions by large Swiss banks.
The Swiss Franc is currently trading at CHF/GBP 0.6586 against the Pound, and CHF/EUR 0.8219 against the Euro.
It is predicted that the Swiss Franc should reside at approximately 0.89 against the ‘Buck’ and 114.4 against the Japanese Yen for the foreseeable future.
Next Tuesday shall see the Swiss balance of trade results which shall hopefully help to keep the Swiss Franc consistent.