Recent franc weakness is in line with the rise in global yields, a broadening global economic recovery and a drop in political uncertainty in Europe. Yet we remain of the view that major central banks will move to curb any unwarranted rise in long-term yields that risks hurting the ongoing recovery. Such curbs should limit the negative impact of rising rates on the Swiss franc.
Meanwhile, the Swiss current-account surplus continues to provide structural support to the franc. Since Q1 2009, the Swiss current account has been in surplus every single quarter. Our central scenario for an improvement in global economic activity in the second half of 2021 points to some capital outflows, which should weigh on the safe-haven Swiss franc, but we doubt that net capital outflows will be large enough to offset the structural trade surplus over the next few quarters.
Although we do not expect the Swiss National Bank (SNB) to lead the charge in normalising monetary policy, it should not be far behind other major central banks, notably the ECB, while structurally low inflationary pressure in Switzerland means that the risk of erosion of the value of the franc is likely to remain much lower than for other currencies (the Japanese yen excepted).
For all these reasons, we are sticking to our scenario of a moderate decline in the Swiss franc over the next 12 months. Our projections for the EUR/CHF rate are CHF1.10 on a three-month horizon, CHF1.12 on a six-month horizon and CHF1.13 on a 12-month horizon.