Swissie will remain a peerless safe haven
SINCE the financial crisis, excepting gold, the Swissie has been the global reserve currency of choice. After failed efforts last year, the authorities are now signalling that businesses will have to get used to exporting with a strong currency. So far, so successful.
Both the euro and dollar have been hitting historic lows against the Swissie, with the former dropping to SFr1.2052 last week and the latter down to SFr0.8327 on Monday. The dollar, which has also traditionally been a safe haven, is no longer thought of as secure enough. Switzerland’s loose monetary policy and weak data, such as Friday’s US non-farm payrolls figures, are undermining its reputation.
Rishi Patel of Fair FX says: “Switzerland is a victim of its own success. From a global perspective it has always outperformed. With controlled national debt, a balanced budget and sustainable growth, the economy remains robust.” He adds: “With negative factors surrounding many other major currencies and global economies, it is unlikely the position of the Swiss franc will change soon. The Eurozone periphery is not helping the situation.” As long as the Eurozone’s only solution to the debt crisis is to prop up its rotten edges, the euro will continue to trade weakly against the Swissie.
Last month, Switzerland’s head of the federal department of economic affairs, Johann Schneider-Ammann, told business leaders they will have to “learn to live” with – and even “want to live” with – a strong franc. He has clearly learnt from last year’s SFr19.2bn loss, as Switzerland’s central bank failed to keep currency appreciation in check by buying falling euros. Despite legitimate worries about exporting with a strong currency, recent data shows that things are working. The Swiss economy grew annually 2.4 per cent in the first quarter, with exports up 5.7 per cent. Also, the Swiss purchasing managers’ index rose in May to 59.2 points from 58.4 points in April, while retail sales in the same month rose 7.5 per cent year-on-year.
Let’s hope Switzerland remains successful with a strong currency. The alternative model of competitive devaluation, practised in the Great Depression, benefits no country. There is a cloud on the horizon though: Swiss banks, and so its economy, could be drowned by the contagion of a collapsing Eurozone. One way or the other, in the 21st century, no Swiss family is an island.