How strong is the franc really? – Commerzbank

It can be useful to look at the bigger picture when assessing the current movements of the Swiss Franc (CHF). Since the beginning of 2020, the CHF has appreciated by almost 15% against the Euro and by more than 18% against Switzerland’s trading partners, notes Ulrich Leuchtmann, Head of FX and Commodities Research at Commerzbank.

There is no evidence of excessive strength of the CHF

“An 18% appreciation does not burden Swiss exporters or those Swiss companies that compete with imports. At least not significantly. This is because the CHF’s performance is merely an expression of the fact that Switzerland was almost the only economy that largely escaped the global inflationary shock.”

“Yes, inflation in Switzerland also rose somewhat as a result of the pandemic. At its peak, the Federal Statistical Office recorded a price increase of 3.5% (compared to the previous year, in August 2022). But that was nothing compared to what was recorded elsewhere: 9.1% in the US, 10.6% in the eurozone, 11.1% in the UK, etc.”

“But if the domestic purchasing power of other currencies eroded faster, it stands to reason that their purchasing power on the foreign exchange market also eroded against the franc. Adjusted for these inflation differences, the NEER becomes the real effective exchange rate (REER). Over the same period, it rose by only 4.6% – almost exactly the same as the REER of the Euro. This means that, apart from the fact that Switzerland has largely escaped the post-pandemic inflationary shock, there is no evidence of excessive strength of the CHF.”

Source: Fx Street

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