Investment Clock insights

Swiss franc not strengthening despite the weak dollar environment


Hiroki Hashimoto

27 July 2017

Today’s headlines centred around the Federal Open Market Committee’s decision and the subsequent market reaction in currency markets. Despite the outcome being broadly in-line with most economists’ expectations, the US dollar has weakened towards a 14-month low (chart 1). Against this backdrop, the Swiss franc is defying the trend and not strengthening against the dollar and sending its value against the euro to its weakest level since the Swiss National Bank’s (SNB’s) 1.20 cap was abandoned in January 2015 (chart 2). 
The SNB President Jordan reiterated earlier this week that the Swiss franc remains significantly overvalued, a statement with which we agree. Thus, despite the recent coordinated hawkish speeches from other central banks, we do not expect the SNB to change its loose policy any time soon. 
The Bank of Japan is another firm ‘non-hiker’.  The recent downgrade in their inflation outlook confirms our view that the underlying inflationary pressures remain low and their economy requires a continuation of loose policy.  The multi asset funds we manage have been underweight the Swiss franc and the Japanese yen, whilst favouring the Australian and Canadian dollar and the euro.  We expect yen weakness to boost Japanese equities, helping their exporters, where we remain overweight.

Today’s headlines centred around the Federal Open Market Committee’s (FOMC's) decision and the subsequent market reaction in currency markets. Despite the outcome being broadly in-line with most economists’ expectations, the US dollar has weakened towards a 14-month low (chart 1). Against this backdrop, the Swiss franc is defying the trend and not strengthening against the dollar and sending its value against the euro to its weakest level since the Swiss National Bank’s (SNB’s) 1.20 cap was abandoned in January 2015 (chart 2). 

The SNB President Jordan reiterated earlier this week that the Swiss franc remains significantly overvalued, a statement with which we agree. Thus, despite the recent coordinated hawkish speeches from other central banks, we do not expect the SNB to change its loose policy any time soon. 

The Bank of Japan is another firm ‘non-hiker’. The recent downgrade in their inflation outlook confirms our view that the underlying inflationary pressures remain low and their economy requires a continuation of loose policy. The multi asset funds we manage have been underweight the Swiss franc and the Japanese yen, whilst favouring the Australian and Canadian dollar and the euro.  We expect yen weakness to boost Japanese equities, helping their exporters, where we remain overweight.

Chart 1: US Dollar Index continues its descent following the FOMC announcement

Chart 2: Swiss Franc weakens against the euro


The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.