USD to CHF forecast for 2020
What is in store for the ‘safe haven’ Swiss franc versus the dollar? We look at the USD/CHF forecast for 2020
It is a truth universally acknowledged that an investor in times of uncertainty will revert to the comfort of a "safe haven" investment.
Geopolitical tensions between the US and Iran, the risk of terrorism, protests in Hong Kong and France and the rapidly-evolving Chinese coronavirus situation are just some of the issues currently taking their toll on the global economy, sending anxious investors towards more stable investments such as the Swiss franc.
Switzerland is a stable, safe country that boasts one of the steadiest market economies in the world with a GDP of $705.5m in 2018. Its GDP per capita was $82,589 during the same period, the second highest in the world and largely due to its servicing and manufacturing sectors, which includes machinery, pharmaceuticals and watches.
The country has very low levels of unemployment, a highly skilled workforce and a transparent legal system. The country’s political stability, low corporate tax rates and stable fiscal and monetary policy further add to its attraction, making its currency an appealing prospect in times of crisis.
The Swiss economy grew by 0.4 per cent in the third quarter of 2019 to $143,637m, improving on the 0.3 per cent growth seen in the previous quarter and beating the expected growth of 0.2 per cent.
The State Secretariat for Economic Affairs (SECO) attributed this growth to the export of chemicals and pharmaceuticals as well as energy. It saw Switzerland take 19th place in the quarterly GDP rankings.
Why is the Swiss franc a 'safe haven'?
Confidence in the stability of Switzerland’s government and financial system means investors have long turned to the Swiss franc (CHF) during times of uncertainty, trusting that the currency can retain its value when markets take a hit.
During the 2008 financial crisis and the 2011 Eurozone debt chaos, investors flocked to the currency to protect their cash and the franc appreciated considerably against the Euro.
Together with the Japanese Yen, the Swiss currency is considered one of the world’s “safe havens” and forms an important part of many investors' portfolios. Easily bought and traded, foreign currencies are one of the simplest safe havens to invest in, which adds to the Swiss franc’s popularity.
Interest rates 2019
Switzerland also has an extremely low interest rate and while many analysts predicted that the European Central Bank (ECB) would raise its interest rate in 2019 and thus encourage the Swiss National Bank (SNB) to follow suit, in reality neither increase took place.
The ECB cited “sluggish” economic growth as its reason for maintaining its rate and the SNB also stayed firm, maintaining its five-year rate of -0.75 per cent.
The SNB reasoned that the currency is in a highly “fragile” environment and that Swiss manufacturers and exporters could suffer should the Swiss franc be allowed to appreciate. What’s more, it has signalled that it expects rates to remain at current levels until at least 2021. Inflation is predicted to be 0.1 per cent in 2020 and 0.5 per cent in 2021.
The “swissie”, as the USD/CHF currency pairing is known, had a somewhat tumultuous year in 2019, fuelled in part by tensions between the US and China, Brexit uncertainty and the “yellow vest” protests in France.
USD to CHF in 2019
While the swissie reached a high of 1.02 in May 2019, it was soon to decline to a yearly low of 0.97 in late June. Things improved slightly in July but the USD/CHF trend was soon to drop back to 0.96 in mid-August with US-China tensions and Brexit causing much of the rockiness.
The last quarter saw a high of 1.001 at the end of November, but a further decline was on the cards and the year ended at 0.967.
China’s current struggle to contain the flu-like coronavirus, coupled with the US adding Switzerland to its watchlist of “currency manipulators”, have again sent investors returning to the safe haven Swiss currency, causing the franc to rally and the USD/CHF rate to fall to 0.964 on January 16 2020.
However, increasing confidence in China’s ability to contain and manage the virus seems to have relaxed investors and we have seen the USD/CHF value rise again in recent days.
Positive outlook for 2020
Many analysts have been holding off from making a USD to CHF forecast for 2020. Indeed, with the ongoing US-China trade negotiations, Brexit, the US presidential election coming up in November and now the coronavirus there is plenty in 2020 to affect the pairing.
The US economy is expected to pick up in 2020, with the Federal Reserve increasing interest rates. This would support the USD and reduce safe-haven buying for lower risk currencies like the Swiss franc and Japanese yen.
The Organisation for Economic Cooperation and Development (OECD) foresees a bright outlook for the Swiss economy in 2020: “Private consumption will remain resilient, supported by low unemployment. A gloomy global environment will weigh on investment and trade, but the current account surplus will remain large.”
The Swiss government has noted that the country’s reliance on exports may be unduly affected by weak growth in Eurozone countries, predicting growth of 1.7 per cent, with SECO adding: “The export sectors, such as the metal and machinery industry, would suffer from sluggish international growth.”
Geopolitical unrest could also take its toll. Should tensions between the US and China increase or trading issues emerge between the EU and US this could negatively affect the Swiss economy.
USD/CHF exchange rate forecast
Wallet Investor’s forecast system pegs the USD/CHF exchange rate forecast as a “not so good” one-year investment option. However, it forecasts that a long-term increase is likely.
HSBC’s USD/CHF forecast from its Global Currency Overview for 2020 believes the pairing is set to rise to 0.98 by the end of the quarter and remain at this value throughout the rest of the year.
Royal Bank of Canada (RBC) Economics, on the other hand, forecasts Q1 of 2020 ending at 1.02, rising to 1.04 in Q2, 1.03 in Q3 and ending the year at 1.01.
So, should we consider adding Swiss francs to our investments?
While the currency could be a good option, as Will Hobbs of Barclays Smart Investor told the Telegraph “Instead of focusing on finding dubious safe havens, the most cost-efficient way to fortify one’s portfolio is through diversification.”
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