EUR/CHF Before the SNB Meeting

This weekend, don’t count on soaking up the sun. After converting your Swiss francs into euros or other currencies necessary for this payroll period, you might take a stroll through Christmas markets armed with an umbrella, just in case the sun doesn’t appear. The Genevan folklore, detailed at the end of this analysis, might offer some amusement for the more adventurous among us.

Financial Markets (and Christmas Markets)

Investors loathe uncertainty and instability. Nevertheless, confidence seems to have endured, as evidenced by the markets' performance two days after the motion of censure and the day following the resignation of the French government. This resilience persists despite France retaining its AA- credit rating from Standard & Poor’s. Optimism prevails.

The Euro Defies Analysts' Concerns

The EUR/CHF exchange rate remained stable over the past month, particularly following November 6, the day after Donald Trump’s election. Despite occasional fluctuations, the pair exhibited a gradual, moderate decline. Following the French government’s resignation, fears surrounding France’s severely deficit-laden budget did not materialize into a crisis of investor confidence or accelerate the euro’s decline. The EUR/CHF exchange rate has seemingly stabilized, and the Swiss National Bank ultimately did not need to intervene in the currency markets.

A Testament to Resilience

Despite the relatively low EUR/CHF exchange rate, a growing number of export-oriented companies are hedging their euro positions and selling their revenues. This trend has impacted the exchange rate. Meanwhile, the U.S. dollar remains historically strong, and American equities appear overvalued relative to their global standing. The U.S. economy absorbs far more capital than its economic size would suggest.

Dollar Dominance in a Multipolar Aspirant World

While BRICS nations have long sought an alternative reserve currency to the U.S. dollar—Russia being a vocal proponent of a multipolar world—President Trump threatened to impose a 100% tariff on imports from countries adopting such a new currency. In the realm of finance, the world remains unipolar for now. All eyes and capital flows are directed toward the U.S., whose financial markets continue to deliver profits and dividends, further supporting the dollar’s strength. This is happening despite the U.S. Treasury’s ability to print money at will, with minimal apparent impact on the dollar’s exchange rate.

Currency Movements Across the Globe

Halfway across the globe, South Korea has experienced political upheaval. The South Korean won plunged when the president declared martial law. Embroiled in scandals, the leader faced opposition from the entire government and parliament before retracting the decree. The already struggling won dropped 9% overnight amid this democratic crisis. Although it has since recovered slightly, it continues to lose ground against the Swiss franc and the U.S. dollar. This marks the first time in 50 years that South Korea has declared a state of emergency, citing alleged threats from North Korea.

Stable Exchange Rate

The Swiss franc has remained steady this week as traders prepare for next week’s critical monetary policy meeting in Bern. The Swiss National Bank (SNB) is set to decide whether to lower its benchmark interest rate, currently at 1%. Despite a slight uptick in inflation in November, from 0.6% to 0.7%, inflation remains under control. This leaves the SNB ample room to cut rates to 0.75%. Such a move would mechanically weaken the franc against the euro and the U.S. dollar, as it would become less attractive for yield-seeking investors. However, caution is warranted regarding potential repercussions if used in carry trade operations.

In UBS Analysts' Crystal Ball

UBS analysts anticipate that the SNB will lower rates on December 12 and make further cuts in 2025. The SNB’s primary goal is to ensure price stability. The Swiss economy needs cheap money and a weaker franc to boost exports. However, many Swiss residents and cross-border workers would likely prefer the status quo, which keeps the franc’s exchange rate at its current levels for easier conversions into euros and dollars. The December 12 meeting may disappoint this group.

After a 0.25% rate cut in September, the SNB’s vice president suggested that there was no obligation to lower rates further in December. Instead, the SNB hinted that additional rate cuts could be considered in the coming quarters to maintain price stability into 2025 through other channels. With inflation forecasts for Q4 at 1%—but actual data coming in well below this estimate—the SNB has significant flexibility to act. UBS analysts predict a 0.25% nominal rate cut next week, bringing the rate to 0.75%. They also foresee another cut in March 2025, reducing the rate to 0.50%.

UBS projects inflation will decline to 0.50%, driven by a 10% drop in energy prices. This reduction could create a 0.2% gap in Switzerland's core and imported inflation rates, potentially prompting further rate cuts by the SNB. However, much depends on the durability of the current surplus in hydrocarbons following the recent OPEC agreement.

In Economics, Nothing is Certain

EUR/CHF Rollercoaster Ahead?

The interest rate spread between a strong dollar and a strong Swiss franc could bring the two currencies closer to parity. Conversely, the euro’s trajectory will depend heavily on the European Central Bank’s (ECB) monetary policy. If European markets remain sluggish, the ECB may have no choice but to lower rates. Since eurozone interest rates are significantly higher than those in Switzerland, the ECB has much more room to act.

In such a scenario, the Swiss franc might initially weaken but could rebound in the course of 2025. Notably, the ECB is also scheduled to announce its policy decision on December 12, the same day as the SNB. Market turbulence measured in hundreds of pips could be expected.

The SNB’s Upcoming Strategy

Europe’s growth, hampered by tariff hikes promised by the Trump administration, is a major concern for UBS analysts. Consensus among experts suggests the eurozone’s growth rate could drop from the 1% forecasted before the U.S. election to near stagnation. This decline in Europe’s share of the global economy could lead to a significant depreciation of the euro’s exchange rate.

Such a slowdown in Europe would weigh on the growth potential of the Swiss economy, which relies heavily on its immediate neighbor for demand. The SNB, with its proactive stance, would have strong reasons to adopt an aggressive monetary policy, cutting rates to boost the EUR/CHF exchange rate. This would facilitate broader access to borrowing and investment within Switzerland.

According to UBS, Swiss policy rates would then align more closely with market expectations. However, UBS analysts do not anticipate a return to negative interest rates unless the Swiss franc appreciates beyond the threshold sustainable by Switzerland’s balance of payments—possibly triggered by a severe recession in Europe.

The Week in EUR/CHF

EUR/CHF

This week’s EUR/CHF exchange rate trajectory resembled a seismograph. Despite weak activity indicators and the resignation of the French government, the euro has held its ground. France’s HCOB Composite PMI index, at its lowest in over a year, dropped to 48.3, highlighting the steepest contraction in European private sector activity this year.

EUR/CHF maintained its exchange rate around 0.9300 for the second consecutive week after hitting a low of 0.9250 on November 22. However, the overall trend remains bearish. Markets are nervously awaiting the central bank meetings. This week, the pair reached a high of 0.9287 overnight and a weekly peak of 0.9322.

As of this writing, the pair is trading at 0.9288 in the interbank market. By next week, this rate might only be a memory.

USD/CHF

The Dollar Index (DXY), a key measure of U.S. economic health, continues to consolidate against a basket of six foreign currencies. In the U.S., statistics showing the economy’s strength contrast sharply with Europe’s disappointing—and sometimes worrying—economic results. Although U.S. activity indices showed growth, they fell slightly short of expectations. Notably, employment and service sector figures reached a three-year high, signaling resilience despite minor shortfalls.

A reversal in USD/CHF trends is anticipated, especially after next week’s SNB meeting and potential rate cuts.

The dollar recently broke through a resistance level at 0.8890 USD/CHF but fell by 100 pips against the Swiss franc following the release of the aforementioned data. The euro and British pound also gained against the dollar, while the Japanese yen weakened against all major currencies. Meanwhile, the Korean won, a smaller player in forex markets, also lost ground.

At the time of writing, the dollar has retreated to 0.8777 USD/CHF, but this rate could shift significantly based on upcoming Federal Reserve decisions before Christmas and the SNB's policy announcement on December 12.

Major Markets and Commodities

Ahead of remarks by Jerome Powell and Christine Lagarde, traders have been able to recalibrate their currency conversion strategies based on new macroeconomic data and anticipated monetary policy changes. True to form, the SNB has remained more discreet.

November was particularly strong for U.S. financial markets. The election of Donald Trump attracted significant capital inflows, driving gains of 6% to 11%, including a 7.4% rise in the Dow Jones.

In contrast, Europe trailed, weighed down by Germany’s industrial challenges and France’s political crisis following the collapse of the Barnier government. France narrowly avoided a downgrade of its AA- credit rating last weekend. With a vote of no confidence looming and a deeply concerning budget deficit, the country has alarmed investors, who have accelerated capital flight to the U.S. The French CAC40 index fell nearly 2.5% since the U.S. election, while other European markets showed slight gains.

As we warned in our last report, had France lost its AA- rating, numerous pension funds and institutional investors would likely have refused to lend to the country, whose borrowing costs are already on par with Greece's.

This morning, most European markets are in the green, including the CAC40, which is enjoying a fifth consecutive positive session, defying expectations. Investors and rating agencies seem optimistic about the formation of a new French government capable of avoiding significant socio-economic damage.

Year-End Rally in Sight

As we approach the traditional year-end rally, both traders and children look forward to their holiday "gifts." Historically, December has seen market upswings 72% of the time over the past century.

January, however, may be less generous. U.S. tariffs and a potential resurgence in consumer spending could rekindle inflationary pressures.

What Lies Ahead for EUR/CHF?

The EUR/CHF pair is likely to reflect the broader implications of these developments. Most experts consider geopolitical risks and the end-of-year position adjustments by corporates and major market players. Last year, a similar year-end movement pushed EUR/CHF close to record lows, prompting a rush to convert francs into euros and other foreign currencies. The pair then rebounded strongly, reaching well above parity in the new year.

In Asia, modest gains followed an acceleration in Chinese exports, bolstered by strong indicators for the month despite the lack of a new stimulus package.

In the U.S., employment data due at 2:30 PM will undoubtedly influence the Federal Reserve’s upcoming rate decisions. The 10-year U.S. Treasury yield is currently down to 4.17%, a factor that could also sway monetary policy deliberations.

SMI (Swiss Market Index)

Swiss Re

The reinsurer Swiss Re has reported a total of CHF 134 billion in reinsurance liabilities to date, compared to CHF 115 billion last year. Of this, CHF 125 billion is attributed to natural disasters, reflecting a significant increase over the past five years. Flooding in Spain, other parts of Europe, and the UAE alone accounted for CHF 12.5 billion. Despite these challenges, Swiss Re’s stock price has risen from CHF 95 to CHF 132 since January 1.

Holcim Group

Holcim has announced the spin-off of its North American subsidiary to shield it from potential coercive measures under the new government starting next May. The subsidiary will adopt local regulatory standards.

With the SMI standing at 11,778 points, the Zurich Stock Exchange showed little movement this week. The standout performer was jeweler Richemont, whose stock rose 6.5% compared to last week.

Oil Markets

OPEC+ Meeting

Oil-producing and exporting countries reached an agreement to extend the daily production cut of 2.2 million barrels for the next three months. The price of crude briefly surged to $74 per barrel before retreating to $71.

While OPEC+ countries are already producing below capacity, North American production is running at its maximum, weighing down crude oil prices. Drivers who haven’t transitioned to electric vehicles likely won’t mind.

Saudi Arabia needs higher oil prices to fund its "Vision 2030" project, while Russia must sell its oil to finance the war in Europe.

Gold

A Reliable Asset

If you're buying or selling gold in Geneva, it’s essential to compare offers. Having done so this week, I observed considerable price disparities. However, gold, like fine wine, remains a long-term asset. This week, gold held steady at $2,640 per ounce, with a kilogram priced at GBP 66,360 on the London market, equivalent to CHF 74,350. Swiss gold coins like the Vreneli and Napoleon saw a 3% rise, trading at CHF 432.

However, gold has lost ground in the race against "digital gold," which we’ll discuss below.

Bitcoin and Cryptocurrencies

Bitcoin has surpassed the $100,000 mark, a milestone eagerly anticipated by its enthusiasts, including some in Donald Trump’s circle. Its value has since climbed further to $103,700, equivalent to CHF 91,130 at current exchange rates.

Smart investors have already taken profits, bringing Bitcoin back down to $97,950 as of this writing. This highlights the volatility of this market, which is poised for significant developments on January 20.

Slight Uptick in Swiss Unemployment

Switzerland’s economy remains robust and resilient, but November saw a slight rise in unemployment, with 199,000 job seekers reported. The unemployment rate increased to 2.6%, according to the State Secretariat for Economic Affairs (SECO). Over the past year, the largest increases were observed among men and non-Swiss residents.

It’s worth noting that men retire a year later than women in Switzerland—a unique hallmark of Swiss "chivalry." SECO distinguishes between the unemployed (121,000) and job seekers (199,000). Within Europe, only the Czech Republic posts significantly better results, with a near-zero unemployment rate in Prague.

The Cross-Border Worker Controversy

The French government’s plan to reduce unemployment benefits for cross-border workers has been scrapped. Initially, the Barnier government sought to calculate benefits based on equivalent French salaries rather than Swiss salaries, potentially slashing payouts by 75%.

This move, deemed unconstitutional, would have shifted the financial burden from France to the workers themselves. According to the European Union's current laws, cross-border workers pay contributions in the country where they work, and the corresponding country bears the liability.

The proposed changes stirred controversy, leading to a petition spearheaded by René Deléglise, head of the Cross-Border Workers’ Group, and supported by Haute-Savoie senator Cyril Pellevat. Their advocacy secured a favorable resolution for 110,000 French cross-border workers employed in Switzerland.

Weekend Activities in Geneva and Surroundings

Christmas Markets

• Noël au Quai: By the shores of Lake Geneva, offering a magical atmosphere.
• Mont Blanc Street Market: Another festive hub with seasonal charm.
• Saint-Julien Christmas Market: Featuring an ice rink.
• Festijeux in Annemasse: Children can learn to cook and craft wooden figurines at the town square’s Christmas market.

As we wrap up this week's EUR/CHF analysis, the editorial team wishes you an excellent weekend. Don’t forget to download our app for competitive exchange rates at our currency exchange offices. You’ll gain more than just convenience.

X.C.