Franc’s Ascent Versus Struggling Euro Shows Few Signs of Fading

(Bloomberg) --

The reasons for an enduring Swiss franc rally against the euro just keep adding up.

Souring market sentiment from the coronavirus and geopolitical tensions have already driven the haven currency up 1.5% this year, and the rally has further to go for MUFG Bank Ltd. The franc touched its strongest level since April 2017 this week.

Franc’s Ascent Versus Struggling Euro Shows Few Signs of Fading

Next week any further spread of the virus will continue to be a market driver, while traders will look to speeches by European Central Bank Christine Lagarde and Federal Reserve Chair Jerome Powell on Tuesday for clues on the prospects for monetary easing, which have been pressuring the euro. Sweden and New Zealand will also hold rate decisions.

“We expect the Swiss franc to remain in demand amidst weak global growth and the ongoing shift to looser monetary policy,” said Lee Hardman, a currency strategist at MUFG, predicting a steady climb to 1.04 per euro by the end of 2020, a level not seen in almost five years. “Historically the Swiss franc has been a better store of value than other major currencies. We don’t see that changing.”

It’s an appreciation that could irk the Swiss National Bank, which sees sudden surges in the franc as a deflationary threat and a risk to the competitiveness of Swiss exports. With their policy rate already at a record low of minus 0.75%, the SNB has little room to cut further to weaken the currency.

Read more:

SNB Won’t Shy Away From Interventions After U.S. Reprimand: FAZ

Coronavirus Helps Swiss-Franc Bulls, But Don’t Be Complacent

Euro at Risk of Dropping Further on Unwind of Equity Fund Flows

So far this year the central bank has refrained from directly intervening in foreign-exchange markets but President Thomas Jordan said earlier this week it won’t shy away from it given the franc remains “highly valued.” Switzerland was added back on the U.S. watchlist for currency manipulators earlier this year.

“Franc dominance seems to be here to stay, although I would expect an SNB intervention some time soon, said Kyriakos Pavlou, a trader at Eurobank Cyprus Ltd, one of the top 10 most accurate forecasters in Bloomberg’s Group-of-10 currency survey. Pavlou remains watchful of “the extreme level” of 1.0650 per euro for the franc.

What to Watch:

  • U.S. Fed Chair Jerome Powell delivers semiannual monetary policy report to Congress on Tuesday, semiannual testimony to the Senate Banking Committee on Wednesday; Fed’s Patrick Harker discusses the economic outlook and Mary Daly gives a speech in Dublin on Monday, while James Bullard, Neel Kashkari also speak Tuesday
  • ECB President Christine Lagarde speaks at the European Parliament in Strasbourg on Tuesday
  • On Thursday, Mexico’s central bank is expected to cut interest rates by 25bps for a fifth time to 7%
  • The lowering of tariffs by China and the U.S. on each others imports will be effective Feb. 14 at 1:01 pm in Beijing
  • Economic releases include:
    • Canada housing starts, building permits, France industrial sentiment, Italy industrial production, China CPI (Feb. 10)
    • U.K. GDP, industrial production (Feb. 11);
    • U.S. monthly budget statement, New Zealand and Sweden rate decisions, euro-area industrial production (Feb. 12)
    • U.S. jobless claims, CPI, German inflation, U.K. RICS house prices (Feb. 13)
    • U.S. retail sales, industrial production, U.Michigan sentiment, Germany and euro-area GDP (Feb. 14)

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