As 2023 draws to a close, the Swiss Franc stands out as the top performer among G10 currencies. Economists at ANZ Bank have conducted a thorough analysis of the outlook for the Swiss Franc (CHF) and shared their insights.
The primary factor contributing to the strength of the CHF is weaker economic growth in the European Union (EU). ANZ Bank observes that a prolonged period of slow to negative growth in the EU tends to correlate with a stronger CHF Trade Weighted Index (TWI) over an extended timeframe. This correlation suggests that if the EU continues to grapple with sluggish economic conditions, the perceived overvaluation of the CHF may persist for a more extended period than initially anticipated.
Looking ahead to 2024, ANZ Bank suggests that the Swiss National Bank (SNB) may be less concerned about actively supporting the strength of the CHF. While acknowledging that tailwinds supporting the CHF may diminish in the coming year, ANZ Bank anticipates that the currency could remain overvalued in the short term due to Europe’s economic challenges, which are likely to extend into the first half of the next year.
However, ANZ Bank also notes that the softer U.S. Dollar (USD) and global easing rate cycles should prompt a retreat of the CHF from multi-year highs against other G10 currencies. As part of their forecast, ANZ Bank envisions the USD/CHF pair reaching 0.86 by the end of 2024.
In summary, while the Swiss Franc concludes 2023 on a high note, ANZ Bank’s analysis suggests a complex interplay of factors in the coming year. The potential persistence of EU economic challenges may keep the CHF elevated in the short term, but global dynamics, particularly the softer USD, are expected to influence its trajectory in 2024.