Currencies: historic fall of the Swiss franc!

The surprise status quo of the Swiss National Bank continues to cause big sell-offs in the local currency…

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( — The surprise status quo of the Swiss National Bank continues to cause large sell-offs in the local currency. The Swiss franc is in fact on the verge of its longest bearish streak against the dollar in almost half a century, heavily affected by the rate differential between Zurich and Washington. The franc fell 0.1% to 0.9123 per dollar this Tuesday after a low of $0.9151, a level not seen since April. The Swiss currency has lost ground over the last 11 days, marking its longest negative point since 1975, underlines ‘Bloomberg’.

“Given that the political outlook is unlikely to turn hawkish again in the near future, we believe this makes it the ideal financier of carry trades in G10 countries and emerging markets,” says Lefteris Farmakis, FX strategist at Barclays. Since reaching a peak at the end of July, the franc has fallen 6.6% against the greenback. The decline is more limited against the euro, but it still reaches 1.6% over the same period.

The SNB left its main key rate unchanged last week, at 1.75%, while the majority of the market was counting on a tightening of 25 basis points. Meanwhile, the ECB raised its deposit rate by a quarter point to 4% while the Federal Reserve left its borrowing costs between 5.25% and 5.5%, while leaving the door open to a new tightening.

“The franc is still suffering the impact of the SNB’s decision last week,” notes Roberto Cobo Garcia, head of G10 FX strategy at Banco Bilbao Vizcaya Argentaria in Madrid. “Low yields, overvaluation and less central bank intervention are likely to mean a weaker franc going forward.” Cobo Garcia expects the franc to test parity with the euro and fall to around 0.94 against the dollar in the fourth quarter.

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