Swiss Franc CHF – an estimation by Ebury London

Since TextileFuture has its roots in Switzerland, we would like to bring you the evaluation of the Swiss Franc (CHF) and its future a bit nearer by making use of an Ebury Report from London.  We try to make a series on various important currencies of the world, and we are very thankful to Ebury to start the series with the Swiss Franc.

In the U.S. the Swiss National Bank’s policy to weaken the outside value of the Swiss Franc in order to allow exporters to follow their business course. This policy got Switzerland on the list of the currency manipulators under the presidency of Trump, in company with China and some other countries. We have thouroughly studied the evaluation of the Swiss Franc by Ebury and we feel that it is fair and comprehensive.

We wish to add that the financial ties with Great Britain since the Brexit are getting closer with Switzerland, since the two are important financial centres. The EU denied Switzerland the recognition of equivalence of its financial place over a political controversy and the further collaboration with the EU. However Great Britain has already accepted the recognition of equivalence of the Swiss financial place, thus further collaboration in this field might occur in the future.

The feature starts here:

Swiss Franc CHF – an estimation by Ebury London

Alongside its fellow safe-havens, the US Dollar and Japanese yen, the Swiss franc (CHF) was one of the main beneficiaries of the market panic and uncertainty created by the initial outbreak of the COVID-19 pandemic in the first quarter of last year.

The Franc rallied sharply at the onset of the crisis, even amid large-scale intervention from the Swiss National Bank designed to lessen CHF appreciation. Since its lowest point in May, the EUR/CHF cross has, however, moved higher, with the pair now trading roughly in line with our forecasts around the 1.08 level (Figure 1). The currency is also now trading in excess of 10 % higher versus the boradly weaker US dollar over a one-year period, a rally that is around double the pace witnessed in the yen during that time.

As one of the lower risk currencies in the G10, the franc has been driven largely by shifts in global market sentiment since the beginning of the COVID-19 pandemic.

Aside from the yen and the US dollar, the franc has been the worst performer in the G10 since mid-May, during a period largely characterised by ‘risk on’ trading. This move lower in CHF has accelerated since early-November, first following the outcome of the US election and then news of progress towards multiple COVID-19 vaccines. While progress towards mass vaccination is undoubtedly a positive for the Swis economy, we think that it is a negative development for the franc, given the currency’s safe-haven status.

As we noted in our 2021 preview report, we also think that the Swiss economy looks set to receive less o a boost from an unwinding in virus restrictions this year compared to many of its peers. Overall cases of the virus per capita have actually been quite high in Switzerland relative to much of Europa (approximately 55000 per 1 million people), as have deaths (945 per 1M), particularly during the second wave of infection. We do note, however, that the restrictions imposed by the Swiss government have been much less severe. According to Oxford University’s COVID-19 government response stringency indices, the containment measures imposed by Swiss authorities have been the fourth most lenient in the G10 since the start of the crisis. Moreover, Switzerland has also so far ordered less vaccine doses per head than the Euro Area (1.9 vs. 3.3), and the second lowest in the G10 behind Norway.

In response to the crisis, the Swiss National Bank (SNB) has had no room whatsoever to lower interest rates, given that they were already deep in negative territory prior to the pandemic. Instead, the main tool left in the SNB’s armoury has been FX intervention, both direct in the form of FX purchases and indirect verbal intervention. The SNB intervened aggressively during the early stages of the crisis in an attempt to weaken the franc. The most timely measures of the SNB’s intervention efforts is the data on total sight deposits, which serve as a decent proxy for the bank’s overall foreign currency purchases. Sight deposits jumped by the largest amount since the removal of the EUR/CHF currency peg in January 2015 in May last year (Figure 3), with the SNB estimated to have spent 90 billion Swiss francs in the first half of the 2020 alone in order to weaken the currency.

Appreciating pressure on the Franc has, however, eased significantly since mid-2020, with investors instead favouring risky currencies. Sight deposits even declined in the fourth quarter of last year, although FX reserves held at the central bank remain considerably higher for the year at approximately 134 % of GDP.

Preventing a significant appreciation in the franc is the key policy tool at the SNB’s disposal. A heavy dependence on exports (approximately two-thirds of GDP) means that as stronger currency is an issue for the central bank given its impact on worsening export competitiveness. In his recent communications, SNB chairman Thomas Jordan has said that the bank will continue to be active in the FX market, despite being labelled a currency manipulator by the US. Jordan has also continued to reiterate that the franc remains ‘highly valued’. 

The SNB’s accommodative monetary policy stance, combined with fiscal support from the Swiss government, have softened the blow on the economy during the pandemic period. The contraction in the Swiss economy in the second quarter of last year was far more mild than almost every other developed nation (-7% quarter-on-quarter). It also rebounded impressively in Q3 (+7.2% QoQ), ensuring that the economy was much closer to its pre-pandemic size at the end of September than all of the largest four economies in the Euro Area. Switzerland’s dominant export industry has held up well under the circumstances, partly due to the large orientation towards pharmaceuticals. Growth is set to have slowed in the fourth quarter, although the more sporadic nature of restrictions enforced in Switzerland means we think that the Swiss economy will again outperform its Euro Area counterpart.

We remain of the view that the Swiss National Bank will continue to intervene in the FX market and prevent a meaningful appreciation in CHF below current levels in 2021, particularly with inflation still deep in negative territory (-0.8% MoM in December). Our optimistic view towards vaccinations and the global economy this year does, however, ensure that we think intervention will become increasingly less necessary as appreciating pressure on the franc eases. We instead foresee gradual losses for the franc against the euro over our forecast horizon with a return to more normal levels of global economic activity likely to lessen the appeal of safe-haven assets in 2021.

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Newsletter of last Week

Sporting goods 2021: The next normal for an industry in flux https://textile-future.com/archives/64695

The highlights of TextileFuture’s News of last week. For your convenience just click on the feature.

Acquisition

“La Satta” – Manifattura Satta e Bottelli – turns 100 and joins Martinelli Ginetto Group https://textile-future.com/archives/64997

AI Artificial Intelligence

Syngenta Crop Protection and Insilico Medicine to harness artificial intelligence to transform sustainable product innovation https://textile-future.com/archives/64860

Asia

Lunar New Year promises boost for Asian FMCG sales https://textile-future.com/archives/64649

Associations

A Clean Start:  AATCC Announces Improved Version of 1993 Standard Reference Detergent Powder https://textile-future.com/archives/65037

Awards

 Stora Enso from Sweden wins the innovation award “Cellulose Fibre Innovation of the Year 2021” with new cellulose foam for packaging https://textile-future.com/archives/64880

Human Horizons HiPhi X Super SUV Wins IDA Gold Award https://textile-future.com/archives/64924

Bidding

French Connection attracts bidders for a potential takeover  https://textile-future.com/archives/65082

Bio-based polymers

For the first time: Growth rate for bio-based polymers with 8 % CAGR far above overall polymer market growth https://textile-future.com/archives/64658

Oerlikon Barmag Huitong Engineering commissions its first PBS system https://textile-future.com/archives/64677

Board Rooms

Celebrities land in the Boardroom. Here’s How Companies Make It Workhttps://textile-future.com/archives/65047

Carpets

Interview with Alireza Mobini, SHAHKAR DORRIN Carpet Company Kashan CEO – A Fresh Competitor in the Machine-Made Carpet Market https://textile-future.com/archives/64932

Certification

ISKO Vital™+ Premium community face cover receives the NEN certification in the Netherlands https://textile-future.com/archives/64665

China

China teaches Kids Its Own Version of the Climate Change Story https://textile-future.com/archives/65025

Companies

Proposals by the Nomination Board to the Annual General Meeting 2021 of Suominen https://textile-future.com/archives/64567

H & M Hennes & Mauritz AB Full-year report https://textile-future.com/archives/64570

Under Armour Looks on the Mend With CEO Aiming to Widen Appeal https://textile-future.com/archives/64686

Reaction Retail Appoints Gabby Rojchin as Vice President of Retail-Ready Operations and Digital Platforms  https://textile-future.com/archives/64887

Adient reports strong first quarter 2021 financial results https://textile-future.com/archives/65056

Cotton

35th International Cotton Conference Bremen: Make Use of it, and keep it. https://textile-future.com/archives/64973

Couture Looks

From Fendi to Christian Dior: The 14 Best Couture Looks of the Season https://textile-future.com/archives/64780

Data

Swiss FDF and SNB enter into new SNB profit distribution agreement for 2020 to 2025 https://textile-future.com/archives/64683

McKinsey’s Week in Charts https://textile-future.com/archives/64710

Swiss retail trade turnover rose in December by 3.5 % – total figure for 2020 remained stable, despite pandemic https://textile-future.com/archives/64732

Preliminary flash estimate for the fourth quarter of 2020 GDP down by 0.7 % in the Euro Area. and by 0.5 % in the EU https://textile-future.com/archives/64788

New dates and new event cycle for Techtextil and Texprocess https://textile-future.com/archives/64883

Growth and economic well-being: OECD household income grows slightly in the third quarter of 2020 despite GDP rebound https://textile-future.com/archives/64941

Swiss Consumer sentiment deteriorates slightly https://textile-future.com/archives/64954

December2020 compared with November2020Volume of retail trade up by 2.0 % in Euro Area, up by 1.4 % in EU https://textile-future.com/archives/64978

The U.S. economy added 49000 jobs in January, a weak showing after a virus surge https://textile-future.com/archives/65020

The McKinsey Week in Charts https://textile-future.com/archives/65064

Digitisation

Neiman Marcus plans to spend USD 85 million to upgrade online shopping experience https://textile-future.com/archives/64616 D Printing

3 D Printing

Michigan Rep. Haley Stevens Discusses Directs Congressional Efforts to 3D Printing Jobs https://textile-future.com/archives/64765

Events

New date – ILMAC 2021 taking place from October 19 to 21, 2021 https://textile-future.com/archives/64609

IFAI Expo 2021 Opens Call for Presentations https://textile-future.com/archives/64771

Neonyt: About the importance of transparency and authenticity https://textile-future.com/archives/64774

New dates and new event cycle for Techtextil and Texprocess https://textile-future.com/archives/64883

Expansion

Rockline to Invest USD 18 Million in Arkansas https://textile-future.com/archives/64606

Minet Adds Spunlace Line in Romania https://textile-future.com/archives/64612

Masks

New Swiss rule on community masks https://textile-future.com/archives/64602

Partnering

DSM partners with Sympatex Technologies to launch mass-balanced bio-based Arnitel® specialty materials https://textile-future.com/archives/65013

Syngenta Crop Protection and Insilico Medicine to harness artificial intelligence to transform sustainable product innovation https://textile-future.com/archives/64860

Research

Swiss State Secretary Hirayama at the Horizon Europe launch event and informal EU ministerial meeting https://textile-future.com/archives/64783

Scolarships

AATCC Foundation Accepting Scholarship Applications through March 31, 2021 https://textile-future.com/archives/64876

Sewing

Sewing in the focus https://textile-future.com/archives/65061

Sustainability

Coats joins Ellen MacArthur Foundation https://textile-future.com/archives/64671

Bluesign Completes 2020 Revision of all its Chemical Substances Lists https://textile-future.com/archives/64866

Finland’s Fazer unveils bread bag made partly of oat hulls https://textile-future.com/archives/64960

USA

Karl Mayer Competence centre for e-warp knitted fabrics in North America https://textile-future.com/archives/64591

U.S. Chemical Production Ends Year On A High Note https://textile-future.com/archives/64637

U.S. Industry and Union Coalition outlines Policy Reccommendations in letters for President Biden, Congressional Leaders https://textile-future.com/archives/64654

Fashion Brand Jurllyshe Is Coming into the United States Market and more and more American Teenagers like It https://textile-future.com/archives/64803

Venture

Redefining the Role of Manufacturing and Brand Incubation, Gelmart Launches FullStride Ventures https://textile-future.com/archives/64814

Webinars

Groz-Beckert – Academy Mobile: Register now for the February Seminar https://textile-future.com/archives/64798

VDMA Webtalk on material efficiency and recycling for the manmade fibre industry https://textile-future.com/archives/64807

Live Webinar to perform digital shop audits on some of Europe’s biggest websites https://textile-future.com/archives/65041

Euromonitor Webinar on Where to Invest in a Bidenomic Era? (Febr. 10, 2021) https://textile-future.com/archives/65089

AATCC Webinar on Efficacy Testing of Antimicrobial Personal Protective Equipment (PPE) (Febr. 10, 2021) https://textile-future.com/archives/65109

Worth Reading

New WTO publication looks at impact of digital technologies on developing countries  https://textile-future.com/archives/64598

WIPO – Hague System Common Regulations – 2021 Edition  https://textile-future.com/archives/65033

WTO

COVID-19 continued focus of trade facilitation discussions https://textile-future.com/archives/64622  WTO DDG Agah welcomes fifth cohort of WTO young professionals https://textile-future.com/archives/64895