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CURRENCY WATCH


FX Swiss franc


Swiss franc to keep weakening. SNB intends to confirm its


ultra-accommodative policy combination, to avoid an


unwelcome appreciation of the exchange rate, which would compromise both the inflation and growth scenarios.


In the course of 2017 the Swiss franc depreciated against the euro, from a high of EUR/CHF 1.06 to a low of 1.17 (-9%), mostly in reflection of the appreciation of the EUR/USD, supported by the improvement of the political and economic picture in the euro area (easing of the risk of euro- sceptic driſts and strong economic recovery, which prompted the ECB to preannounce with six months’ notice the start, in 2018, of the monetary policy normalisation process). Tis triggered the return of financial flows from Swiss francs – used as a safe haven on account of the risks tied to the electoral cycle in Europe and to uncertainties over the


economic cycle in the Eurozone – to the euro.


Te Swiss National Bank acknowledged these developments already at its September meeting, changing its assessment of the franc from “significantly overvalued” to “highly overvalued”, confirming this wording also on occasion of its latest meeting on 14 December. Over the past few months, the Swiss currency has not only kept weakening against the euro, but has slipped against the dollar as well, aſter appreciating against the US currency until the end of the summer, on the widespread weakness of the dollar and


given the existence of several risks at the international geopolitical level, also involving the United States. Te SNB explains the recent decline of the Swiss franc – against both the euro and the dollar – with the reduced need to resort to safe havens (Fig. 4), while at the same time warning that “this development is


still fragile”, probably with the


intention of indicating that risk factors persist at the global level.


As a result, it reasserted that it is essential to keep the current policy combination, i.e. negative interest rates (target range for


the 3-month Libor of between


-1.25% and -0.25%) and willingness FX TRADER MAGAZINE January - March 2018 29


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