© Julien Manceaux
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Talking about the potential for another rate cut, I would say that there is still a lot of uncertainty in regards to the Greece, since we are not even in the process of negotiating the third bailout, which should start next week, in case everything goes according to the plan. Therefore, there are still a lot of risks, which means that the demand for safe havens, such as the Swiss Franc, will probably remain elevated. Hence, we cannot totally exclude another rate cut for the time being; however, it is not our main scenario anymore. Even though a few months ago it actually was – we thought that another rate cut was on the table for September.
Now, when you look at the spreads between the Swiss Franc and the Euro interest rates, they have remained quite elevated since the SNB acted in January 2015. Thus, given that it has remained quite elevated and stable during the Greek crisis that we saw in the recent weeks, I do not think that the SNB will really need to use the rate cut tool again. However, there is a risk that it does, if for example there are further risks materializing from Greece.
The Swiss economy is expected to grow at a slightly slower pace than previously anticipated this year, as it makes a "painful" adaptation to the strong Franc, a group of experts for the federal government said. At the same time, producer and import prices fell 0.1 % last month, following a 0.8 % drop in May. Do you expect the economy to adapt the new exchange rate environment without falling into a severe recession?
Clearly, we had a negative growth number in Q1, and we will probably have another one in Q2, or a barely positive one. However, afterwards we expect to see better figures even if the unemployment rate increases a bit, which is not excluded for the second half of the year. We should still have a positive growth rate for 2015. We are expecting a 0.6% estimate, whilst we are a bit less optimistic than the SNB for the moment.
Nevertheless, this number still remains very decent compared to other European economies. As Thomas Jordan said, Swiss companies will have to get used to a stronger CHF, due to the fact that the SNB will indeed become more tolerant with a higher exchange rate, which will continue to affect the Swiss economy.
What other factors could determine the behavior of the Swissie in 2015?
The fundamental driver for the Swiss Franc right now is the interest rate tool of the SNB, not interventions. Therefore, as long as the interest rate spreads between the Euro and the Swiss Franc remain stable, the CHF should also remain broadly around its current level. However, we know that there is much more volatility on the bond market in the Euro zone for some weeks now. Hence, this volatility could also affect the CHF market, and we cannot exclude a bit more volatility around the current EUR/CHF level.
Thomas Jordan mentioned he expects the Swiss Franc to weaken over time. Currency strategists see it at 1.06 per euro in the fourth quarter, according to a median of analysts' predictions compiled by Bloomberg. What are your forecasts for EUR/CHF for the Q3 and the end of 2015?
If the consensus is 1.06 for the end of the year, then it would be a depreciation from the current level, and we do not see that coming, as indeed the SNB will be increasingly tolerant with the higher values of the Swiss Franc. This does not mean that we should go beyond parity in the coming six or nine months, but we will probably get closer to it, as the end of the year approaches, simply because the Greek crisis is not over, the safe-haven demand will remain elevated, and the SNB will be less interventionist.
Of course, in case we have stronger bond yields in the Euro zone in the coming months, it could play in favor of a lower Swissie. Thus, as you see there are quite balanced risks around the current levels of 1.05-1.04, but for the end of the year we rather tend to believe that the EUR/CHF will head to parity.