The Swiss Franc is the underperformer of 2024. What’s going on?

The Swiss franc has long been considered a classic example of the European safe haven currency, offering stability amidst financial turbulence. Events labeled as “something happened” occur quite a lot these days, and recent affairs have left CHF languishing as one of the weakest performers on the market. So, what’s behind this unexpected turn of events, and what lies ahead? Let’s delve into it below.

First, let’s take a look at the chart illustrating fluctuations of the USDCHF pair since the beginning of 2024. With movements exceeding 8% in just three months, it’s evident that volatility has spiked, even surpassing that of many individual stocks. Such turbulence is unusual for major currencies, usually characterized by stability. For those keen on tracking a wide array of global economic activities affecting forex rates, consulting an economic calendar is advisable.

If the previous chart indicates a bleak scenario, the next one paints an even grimmer picture.

The Swiss franc emerges as the weakest among all the majors, with its performance reminiscent of the Turkish lira’s notorious nosedive (the disparity between CHF and TRY isn’t vast, though).

Now, let’s zoom out for a broader perspective. A glance at the 1-year chart reveals a significant break at the turn of the year. After enjoying a surge in the latter half of 2023, the franc abruptly shed its gains at the beginning of 2024.

The Swiss franc has been a common choice for investors looking for a stable currency for asset diversification. Indeed, it upheld this reputation throughout the past year. The Swiss National Bank’s regular interventions to purchase francs played a crucial role in maintaining the CHF rate. Moreover, the declining US dollar, fueled by speculations surrounding the soon-to-be rate cut by the Fed, bolstered the franc’s value.

However, in 2024, the SNB changed its course. First, it ceased its intervention policy, signaling a departure from its previous stance. Second, the bank decreased the interest rate from 1.75% to 1.5%, catching many off guard. Notably, Switzerland’s key interest rate was already comparatively low, rendering the franc less enticing to investors.

Is there a silver lining for the Swiss National Bank? Importantly, the weakening franc boosts demand for Swiss export companies, thus stimulating the local economy. 

As for the future outlook of the USDCHF pair, experts don’t forecast minimal fluctuations as both currencies are expected to remain weak relative to other major currencies. Nonetheless, market dynamics can shift rapidly, underscoring the importance of staying abreast of economic developments and making well-informed trading decisions.