23.09.201915:33 Forex Analysis & Reviews: Swiss Franc Special Path: Strengthening and Rallying

The country's leading bank, the Swiss National Bank (SNB), has chosen a different way of forming monetary policy. He did not join other regulators and cut interest rates. In this regard, we can expect the strengthening of the franc, experts assured.

The Swiss Central Bank gave currency traders a "green light" to further strengthen the national currency, ignoring the reduction in interest rates and further easing of monetary policy accordingly. According to SNB forecasts, the Swiss economy expects a slowdown in inflation and economic growth, but this did not affect the decision of the regulator to leave the key rate unchanged.

At the beginning of this month, the franc reached a two-year high against the European currency. The reasons for this were concerns about European economic prospects, the situation around Brexit and trade disputes between the US and China. Meanwhile, the reason for the further growth of the Swiss franc was the high demand of investors for safe-haven currencies. However, this is news with a minus sign for SNB since the appreciation of the franc prevents the growth of the competitiveness of national exports. At the same time, many analysts believe that the strengthening of the Swiss currency is inevitable since the regulator is no longer able to restrain its growth.

According to Jane Foley, Head of Currency Research at Rabobank, two important factors could weaken the franc: increased activity on the part of investors who prefer risky assets, and increased economic growth in the eurozone. She is sure that the attempts of the Central Bank of Switzerland to resist the strengthening of the franc will lead to nothing due to the increase in demand for the assets of the "safe haven".

According to analysts, the Swiss currency has appreciated by more than 3% against the euro since the beginning of this year. Last Friday, the EUR/CHF pair ended the trading session at 1.0921. In early September, the quotations of the pair fell to a minimum since mid-2017, when the 1.0811 mark was reached. According to experts, the rally of the franc, which lasted from April to September 2019, could push the Central Bank of Switzerland to decide on interventions.

Rabobank believes that the EUR/CHF rate will drop to 1.0800 by the end of this year. Experts of the Toronto Dominion Bank do not agree with this forecast. They are sure that the franc will meet the end of the year, having strengthened to 1,0500. However, the last time this happened in 2015 was when the SNB headed for the weakening of the national currency. At the moment, the situation is different because of the widespread decline in risk appetite by investors, making it impossible to set the Swiss franc.

Rabobank analysts believe that SNB will try not to repeat past mistakes. They include the regulator's previous monetary policy and some of the measures that have had a negative impact on the market. Recall that for several years the Central Bank of Switzerland did not allow the strengthening of the franc, setting the lower border of the EUR/CHF pair at 1.2000. However, in January 2015, SNB abruptly abolished this restriction, which provoked a rapid strengthening of the Swiss currency by 30%. This decision caused a shock in the market and led to the bankruptcies of banks and traders. This has long undermined the credibility of SNB, so the regulator will try to prevent such miscalculations, Rabobank believes.

Rabobank analysts believe that SNB will try not to repeat past mistakes. Experts refer to them as the former monetary policy of the regulator and some measures that had negative consequences for the market.