Franc goes back to safe haven. Forecast as of 28.03.2023

The Swiss franc is the currency and legal tender of Switzerland and Liechtenstein. It is also legal tender in the Italian exclave of Campione d'Italia which is surrounded by Swiss territory. Due to the Credit Suisse troubles, one might think that the Swiss franc has lost its status as a safe-haven currency. However, as soon as the bank was taken over by a competitor from UBS, everything returned to normal.

Monthly Swiss franc fundamental forecast

A safe-haven asset is considered to be bonds that are in high international demand with a minimum acceptable risk of default, for example, American or Japanese securities. That is why the US dollar and the yen are safe havens. Switzerland is an exception to the rule due to its low public debt and low proportion of the international property. Rather, it exports franc-denominated deposits, which are considered very safe. Not surprisingly, Credit Suisse's problems initially led to USDCHF growth, and their solution allowed the pair to closely approach the previously announced target of 0.91.

As written already, the main bullish drivers for the Swiss franc in 2023 are investors‘ concerns about an impending recession and the SNB’s willingness to continue raising the rates. In this regard, the bankruptcy of US banks could encourage the USDCHF bears because it suggests a recession in the US economy. The rest of the banks will be extremely cautious, they will tighten lending conditions and issue fewer loans, which will slow down the rate of GDP growth.

Nevertheless, when a banking crisis happens in a country, its local currency will hardly rise in value. Only the takeover of Credit Suisse by a competitor from UBS, through the mediation of SNB, allowed the franc to strengthen. The SNB contributed to the USDCHF decline.

By raising the rate by half a point to 1.5% and indicating that monetary tightening could continue, the Swiss National Bank lured investors back to the franc. With the economy resilient and the SNB's determination to fight inflation, Citi believes the central bank should raise the interest rate by another 50 basis points in June and by the same amount at the remaining two meetings in 2023. This will bring the SNB rate to 3%, while the other worlds leading central banks are expected to cut interest rates.

Expectations for interest rates of leading central banks

UBS predicts that more than half of the 32 regulators it monitors will cut interest rates by the end of this year. 7 regulators will leave it unchanged. If the Swiss National Bank continues to tighten its monetary policy against such a background, the franc could become the best-performing currency in Forex. Divergence in monetary policy will support the CHF rally.

The USDCHF trend will depend on the stabilization of the banking system and the recession in the USA. If there is no downturn in the US economy and inflation remains high, the US dollar may not weaken. Otherwise, the USD downtrend will develop.

Monthly trading plan for USDCHF

The franc looks stable amid the global market turmoil. SNB showed its ability to rescue deposits that were considered reliable. This means investors are likely to buy the franc as a safe haven. Therefore, the USDCHF can well continue falling towards 0.91 and 0.89. The recommendation is to sell.