Swiss Franc
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Swiss Franc
Our Core Thesis: European leaders have successfully implemented austerity, disallowed notorious wage increases in the periphery and nearly introduced deflation. Inflation differences between the euro zone and Switzerland will decrease to zero, Swiss inflation might even be higher in some years. With time, the remaining slight CHF overvaluation will shrink to zero but the EUR/CHF will remain close to 1.20. Risk-off flows will not leave Switzerland, but they will be converted into risk-on flows (stocks and real estate) thanks to high immigration and higher Swiss GDP growth. In some years strong global growth and high German wage increases will boost inflation in Germany and Switzerland but Southern Europe will still struggle. At that moment the SNB will need to hike interest rates - before or in line with the ECB and the EUR/CHF will fall under 1.20. The consequence for monetary policy will be:
  1. Either the SNB fights inflation and the Swiss real estate bubble, allows a CHF appreciation and sells reserves below the price of EUR/CHF 1.20 or
  2. Switzerland accepts higher inflation and consequently gives up its competitive advantage in lower inflation and lower borrowing rates. The latter scenario was excluded by the SNB's Thomas Jordan already in 1999 when he pledged against a euro membership. The SNB mandate explicitly disallows inflation.
The first scenario, namely that the SNB sells reserves below EUR/CHF 1.20 is therefore the only feasible solution. Whether the SNB suffers a big loss depends on the income it can generate in the meantime. In regular posts we show how the Swiss CPI comes closer and closer to euro zone inflation. One day, maybe in 10 or 20 years, the Swiss franc will depreciate more strongly, but this will be only after the bust of the Swiss real estate bubble.
Curated by George Dorgan
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CHF Price Movements: Correlations between CHF, Gold and the German Economy - SNBCHF.COM

CHF Price Movements: Correlations between CHF, Gold and the German Economy - SNBCHF.COM | Swiss Franc | Scoop.it
A big part of Swiss consumption is imported from Germany. Therefore Swiss inflation is often correlated to German inflation. Investment flows often move to Switzerland and Germany at the same time.
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Is EUR/CHF 1.30 Possible? - SNBCHF.COM

Is EUR/CHF 1.30 Possible? - SNBCHF.COM | Swiss Franc | Scoop.it
Can EURCHF rise to 1.30? We think that the rise to 1.30 must happen quickly before Swiss inflation rises and SNB exits the cap and hikes rates one day.
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Shoot-Out between Robert Savage, FX Concepts and George Dorgan at Euromoney event Where is the carry trade?

Shoot-Out between Robert Savage, FX Concepts and George Dorgan at Euromoney event Where is the carry trade? | Swiss Franc | Scoop.it
The Swiss franc cannot be a funding currency of a carry trade as long as ECB rate hike expectations are small. Once China recovers global inflation should rise again and with it possibly the franc.
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Is the Swiss Capital Account Able to Neutralise the Persistent Current Account Surpluses

Is the Swiss Capital Account Able to Neutralise the Persistent Current Account Surpluses | Swiss Franc | Scoop.it
The SNB will have issues maintaining the EUR/CHF floor in the longer term, because the expected yields on Swiss investments abroad might not be sufficiently higher than the yield on investments in Switzerland.
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The Swiss Balance of Payments 2012 and History, Understand if CHF may Depreciate

The Swiss Balance of Payments 2012 and History, Understand if CHF may Depreciate | Swiss Franc | Scoop.it
We apply the balance of payments model for determining FX rate movements for the EUR/CHF exchange rate. At the same time we present the history of the Swiss balance of payments.
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The Volcker Moment and the First Cap on CHF -SNBCHF.COM

The Volcker Moment and the First Cap on CHF -SNBCHF.COM | Swiss Franc | Scoop.it
In 1978 the SNB established for the first time a cap on the Swiss franc. Some years later Paul Volcker and the so-called "Volcker moment", defeated inflation and helped the Swiss out of their dilemma.
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CHF Is No Safe-Haven, but a Safe Proxy for Global Economic Growth - SNBCHF.COM

CHF Is No Safe-Haven, but a Safe Proxy for Global Economic Growth - SNBCHF.COM | Swiss Franc | Scoop.it
In our view the Swiss franc is Not a Safe-Haven, but a Safe Proxy for Global Economic Growth. Recent SNB research confirms our view.
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Purchasing Power Parity: Is CHF Overvalued? - SNBCHF.COM

Purchasing Power Parity: Is CHF Overvalued? - SNBCHF.COM | Swiss Franc | Scoop.it
Is CHF is overvalued? Economists often use misleading PPP measures like the Big Mac, the OECD indices. PPP based on producer prices show that AUD, NZD and NOK are overvalued but the Swiss franc is not.
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Debt Reduction, the new Financial Cycle, an Important Driver of EUR/CHF - SNBCHF.COM

Debt Reduction, the new Financial Cycle, an Important Driver of EUR/CHF - SNBCHF.COM | Swiss Franc | Scoop.it
We think that the upcoming new financial cycle will have an important influence on the EUR/CHF exchange rate.Criteria for measuring risk are public and private debt and the investors' risk aversion.
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The History of the Swiss Franc -SNBCHF.COM

The History of the Swiss Franc -SNBCHF.COM | Swiss Franc | Scoop.it
The History of the Swiss Franc from the 1950s until 2013 under special considerations of the activities of Swiss National Bank (SNB).
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Why negative rates would imply that the Swiss franc rises - SNBCHF.COM

Why negative rates would imply that the Swiss franc rises - SNBCHF.COM | Swiss Franc | Scoop.it
If the SNB introduces negative rates then it will reduce base money. Swiss banks will reduced their excess reserves, the Swiss franc will rise and the EUR/CHF floor will be endangered.
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Jordan 1999 paper: Why Switzerland should never peg to the Euro - SNBCHF.COM

Jordan 1999 paper: Why Switzerland should never peg to the Euro - SNBCHF.COM | Swiss Franc | Scoop.it
SNB's Thomas Jordan published a paper in 1999 that CHF should not be pegged to the euro because the Swiss will loose their low interest rate advantage.
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