The game is well known: as soon as uncertainty spreads, investors flee to the safe haven of the Swiss franc. But this usual pattern is not enough to explain why the Swiss currency is currently rising again so that one euro now costs 1.04 francs. That is the highest level since July 2015. In mid-September, 1.09 francs had to be paid for one euro. The fact that the franc is strengthening is primarily the result of the general weakness of the euro. The European single currency is under pressure for two reasons: The wave of infections fueled by the new Corona variant Omikron and the resulting restrictions are likely to slow down economic development in Europe. In addition, interest rate hikes by the European Central Bank (ECB) have become a long way off due to the high inflation rate in the euro zone.As a result, the dollar has recently gained strength against the euro.

Johannes Ritter

Correspondent for politics and business in Switzerland.

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A strong franc is poison for the export-strong Swiss economy because it makes goods more expensive abroad and thus affects the competitiveness of companies.

It is therefore one of the basic exercises of the Swiss National Bank (SNB) to counter an excessive appreciation of the domestic currency by intervening in the foreign exchange market.

Over the years she has bought foreign currencies such as euros and dollars on a large scale with self-printed francs and thus amassed a huge foreign exchange inventory of more than 950 billion francs.

But the SNB is currently noticeably calm. The central bank itself, which has not pursued an exchange rate target since the departure from the euro peg, does not comment on possible fire-fighting operations. But the fact that the sight deposits in its balance sheet have remained almost unchanged over the past three weeks is a sign that the SNB barely intervened in the markets during this period. "So the SNB does not fundamentally resist the appreciation of the Swiss franc," says Thomas Gitzel, chief economist at Liechtenstein's VP Bank. The central bankers would not have put their hands on their laps either. Gitzel takes a somewhat longer consideration: The sight deposits have increased by around five billion francs since the beginning of October. He suspects that this should prevent abrupt revaluations."So the SNB is currently primarily concerned with smoothing out the appreciation movement against the euro."

The fact that, unlike in earlier revaluation phases, the National Bank does not feel any great pressure to act is likely to have something to do with price developments. In Switzerland, the inflation rate was only 1.2 percent in October, while inflation in the euro zone was 4.1 percent. This mitigates the appreciation effect. Adjusted for price, the exchange rate development for the Swiss economy is therefore less dramatic than it might appear with a view to the published exchange rates.

This could explain why Swiss companies have so far hardly heard any lamentations about the strengthened Swiss franc. In addition, the industry has now learned to live with a rock-hard franc and has adjusted the costs accordingly. Thomas Stucki, former head of the SNB department and now head of investments at St. Galler Kantonalbank, points out that companies that are strongly oriented towards the dollar area and Asia currently have no exchange rate problems anyway because of the strong dollar. For companies that mainly export to the euro area, times could very well be tougher if the euro-franc exchange rate remained at the current level for a longer period of time or even moved towards parity. The economist considers the latter to be unlikely.

Stucki expects that the ECB will not get rid of its role as guarantor for the debts of Italy and the other financially weak euro countries anytime soon. Both this ascription and the unclear reaction to inflation in the euro zone undermine confidence in the ECB's ability to act and made the euro vulnerable in the currency markets. But if the euro remains under pressure, it will be difficult for the SNB to operate its own interest rate policy again and to take the first steps towards lifting negative interest rates next year, in tow with the American central bank. “The SNB is in a very uncomfortable position. She is at the mercy of the ECB, ”said Stucki of the FAZ

You-Na Park-Heger, currency specialist at Commerzbank, also expects the SNB to orient its monetary policy towards the ECB, which is not expected to make an initial rate hike until the end of 2023.

Because an earlier change of course would increase the appreciation pressure on the franc, which is not in the interests of the Swiss central bank.

Park-Heger expects the euro to be under selling pressure in the coming year due to the ECB's long-term expansionary monetary policy.

This will also be noticeable in the exchange rate to the Swiss franc.

The analyst sees this consistently at 1.04 francs per euro in 2022.