The Swiss Franc (CHF) has seen a significant appreciation against the Euro and Switzerland’s trading partners since the beginning of 2020. According to Ulrich Leuchtmann, the Head of FX and Commodity Research at Commerzbank, the CHF has appreciated by almost 15% against the Euro and over 18% against Switzerland’s trading partners. However, this increase in value does not seem to burden Swiss exporters or companies that compete with imports significantly. This is due to the fact that Switzerland was one of the few economies to largely escape the global inflation shock caused by the pandemic.
While inflation in Switzerland did rise somewhat as a result of the pandemic, it was nowhere near the levels seen in other countries. The Federal Statistical Office recorded a price increase of 3.5% in August 2022 compared to the previous year. In contrast, the inflation rates in the USA, Eurozone, and UK were much higher, with increases of 9.1%, 10.6%, and 11.1% respectively. This difference in inflation rates has led to a erosion of purchasing power for these currencies on the foreign exchange market against the Swiss Franc. When adjusted for these inflation differences, the real effective exchange rate (REER) of the CHF only increased by 4.6% during the same period, similar to the REER of the Euro.
Overall, there is no clear evidence of excessive strength in the Swiss Franc. The CHF’s performance can largely be attributed to Switzerland’s resilience to the global inflation shock and the relatively low levels of inflation compared to other countries. The NEER and REER of the CHF have not shown any extreme fluctuations, indicating that the CHF’s value is not artificially inflated. This stability in the CHF’s value bodes well for Swiss exporters and companies that rely on imports, as they are not significantly impacted by the currency’s appreciation.
It is important to consider the broader economic context when assessing the movements in the Swiss Franc. The CHF’s appreciation may be a reflection of Switzerland’s economic stability and resilience in the face of external shocks, rather than a sign of excessive strength. As one of the few economies to escape the worst of the pandemic-induced inflation, Switzerland’s currency has remained relatively stable compared to its trading partners. This stability is crucial for Swiss businesses and exporters, as it allows them to remain competitive in the global market without facing significant financial burdens.
In conclusion, the current movements in the Swiss Franc do not show any signs of excessive strength or instability. The CHF’s appreciation can largely be attributed to Switzerland’s economic resilience and low inflation rates compared to other countries. Swiss exporters and companies that rely on imports are not significantly impacted by the CHF’s appreciation, as it is in line with the currency’s real effective exchange rate. As Switzerland continues to navigate the post-pandemic economic landscape, the stability of the Swiss Franc will remain a key factor in maintaining the country’s competitiveness and economic growth.