EconomicReason

The Swiss Franc is at an all-time low against the Euro and is now toying with 1.62 CHF/EUR, after having taken the hurdle of 1.60 CHF/EUR only a few weeks ago. Due to the lower inflation rate in Switzerland as compared to Europe, in real terms, the Swiss franc is even cheaper than indicated by nominal exchange rates: against European trading partners, it just reached a 13 year low. The Swiss Franc is significantly undervalued now. This is a very unusual condition for a currency that used to appreciate steadily since the transition to floating exchange rates in the early 1970s. Since 2005, the Swiss franc has been depreciating at an accelerating pace:

The reason behind the weakness is most probably monetary policy which is behind the curve, thus inviting to fund carry trades in Swiss Francs. The accelerating depreciation did not escape the Swiss National Bank’s attention, as was proven by remarks of chairman Roth in Davos lending some short-term support which, however, evaporated quickly.

Speculative bubbles are tough to stop once they got going, and the above chart looks very much like it already got going. They also usually end in tears. My forecast is: there will be tears this year, and maybe soon. I expect the Swiss Franc to appreciate significantly and abruptly sometime this year.