Outlook for the CHF

In light of recent downward pressure on the Franc (much to the delight of the SNB and Swiss exporters) I am curious about people’s thoughts on its outlook.

The Franc is the strongest performing currency over the past 100 years or so. Here’s how it’s done vs. USD and EUR since 06.1993 …

On the shorter term, this site (by some Finnish economists/programmers) currently has their 2σ bands for the 3 month CHFEUR pair at 1.1004–1.1903 EUR/CHF (right now the forex market is at 1.109EUR/CHF)
RatesFX - Swiss franc, CHF, Prediction and volatility data table Unfortunately, their methodology is a bit of a black box so I am not sure what to make of it…

On the longer term, there are several complicating factors at the moment… SNF’s huge balance sheet, negative interest rates, shifting global balances of power, etc.

Since most of us are mostly earning salaries in CHF and a lot of us seem to have a passing interest in economics, perhaps some of you have some thoughts on this.

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This oxymoron is a very nice summary how markets (and masses) think (spoiler: they don’t).

Mr. Market buys CHF because his neighbour (who is also Mr Market!) heard that the CHF has a long history as a strong currency.

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Also been reflecting on this with the CHF +10% since COVID. Hard to find consensus on where FX goes so I have concluded it is just best to spread risk.

Earn in CHF, invest in USD/EUR denominated equities.

If CHF keeps getting stronger then income and monthly investment capacity keeps growing which is great. If it weakens then my current investments will go further locally which is great.

Either way will end up wealthy either overseas or in Switzerland and can take my pick on where to spend money in the short term (holidays, import goods, etc.) and long term (where to retire).

Working in Switzerland is so incredibly fortunate in this current era.

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Totally agree with you in that by not being in cash, one reduces currency risk. This is clearly the best strategy on a personal level. (Also agree that we are very fortunate here in Switzerland - on many levels.)

My feeling is that we are now seeing some pullback from the safe-haven rush to the Franc of 2020 (due to coronavirus). But this “risk-on” flow has occurred quite a lot later than the “risk-on” flow into equities, so perhaps I am completely wrong.

I find it quite interesting to think about long-term currency fluctuations and the Swiss case. Switzerland is not a commodity exporter but is a major technology and services exporter, which I expect continue, so the trade surplus (and thus inflows to CHF) is likely to continue. Will the Franc be the best performing currency over the next 12 months? Probably not unless there is another “black swan” event. But over the next 20 years, I’m not sure I’d bet against it.

Aren’t the interest rate differential already backing it up?

Sorry, not clear on what you mean…

Lower CB interest rate should, in theory, put downwards pressure on a currency but that hasn’t really happened to the Franc with the SNB’s rate being -0.75% for over 6 years now (lowest in the world… #2 is Denmark at -0.6%, then Japan at -0.1%, all others are 0 or positive).

Isn’t the current value the best estimate for the outlook?

What matters is the difference of interest rate, not just the rate itself:

A more universal way of stating the approximation is “the home interest rate equals the foreign interest rate plus the expected rate of depreciation of the home currency.”

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Yes I know. But the SNB rate has been the lowest in the world (i.e. negative differential relative to all other currencies) for several years now and it did not have its desired effect, hence their direct market interventions.

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Possibly yes.

I guess it is the scientist in me that wants to figure out the why and then make some informed statements regarding the future… unfortunately economics is not called the dismal science for nothing. And even then, “science” might be a generous term for what a lot of economists do.

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The debt break works against the inflation target of the SNB. The government has a yearly surplus and that puts deflationary pressure on the CHF. If the SNB really wants to meet the 2% inflation target, then it has to give the government more than the meager 6 billions per year.

The only sciences are STEM. :yawning_face:

Also, that’s not why it’s called the dismal science.

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The only function of economic forecasting is to make astrology look respectable. - John Kenneth Galbraith.

If economists were able to forecast long term currency outlooks, they would be awfully rich, many times over. The fact that most of them are not should tell you something about the usefulness of trying to forecast currency rates or interest rates movements. (*)

Focus on competitive positions at the micro level, it is a hundred times easier than forecasting macro parameters…

(*) The only case I could find about someone making a lot of money on currencies was George Soros/Stanley Druckenmiller, when they bet that the UK would fail to keep the British pound above a certain threshold mandated by the European Exchange Rate mechanism. I don’t have any other example in mind. And Soros and Druckenmiller are traders, not economists. That tells you something about academia.

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Well, only the S parts of STEM are sciences (although I’d add the M part too). Engineering is not, in and of itself, a science either, but obviously relies greatly on science and there is a lot of overlap. At any rate, I would say that “social sciences” has its own definition which is fully independent of that of “science”. This is all, admittedly, pedantic, but isn’t that what internet forums are for :wink:

Interesting. I actually didn’t know the origin of this term. I had always assumed it was “dismal” because the problems economics seeks to solve are unsolvable.

Edit: I should add that I don’t think that economics doesn’t have value. I personally find it fascinating. But it falls short of a true “science”.

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