MUFG Bank analysts, They note that the Swiss franc has recently started to strengthen along with the price of gold. They argue that the move is due more to raising concerns about higher inflation than to demand for safe havens.
Key statements:
“The strengthening of the CHF in recent months has cast some doubt on expectations that it should continue to weaken as the global and European economies recover from the negative impact of COVID. Our own year-end forecasts for EUR / CHF and USD / CHF have been set at 1.1250 and 0.9220 respectively. The recent rally in the CHF has coincided with a rebound in the price of gold, which has risen from a low of $ 1,667 / ounce in March to $ 1,876 / ounce. The correlation between the daily percentage changes in USD / CHF and the price of gold has strengthened again to -0.38 over the past month, but still remains well below the levels of late last year, when it peaked at -0.81 in November “.
“The rally in both CHF and gold appears to be due more to creating concerns about higher inflation than a rebound in demand for safe havens.”
“Looking back over the last fifty years, it is clear that the CHF has been a better long-term store of value than the USD and the EUR. The CHF has strengthened by almost 200% against our equally weighted basket of USD and EUR since 1975. The CHF outperformed sustained periods of higher and rising US inflation in the late 1970s and late 1970s in the run-up to. that of 1980. However, the recent performance of the CHF has been more mixed. The CHF traded on a softer basis during the period of higher inflation in the US in the early 2000s, although it was then followed by the strengthening of the CHF before the next period of higher inflation between 2004 and 2006 ” .
“More evidence of the creation of inflationary pressure could provide a more favorable backdrop for the CHF. It poses upside risks to our forecast of the CHF weakening moderately as the global economy continues to rebound from the impact of COVID. “
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