2020 US Elections: Strong Swiss franc to lower USD/CHF to the 0.90-0.95 range – UBS

The US presidential election is important for Switzerland and its many large international companies, especially during the current cycle when the vote will influence the direction of policy issues such as foreign trade and taxation. The outcome will also determine how the US administration will view the Swiss National Bank’s currency market interventions going forward. USD/CHF has traded between 1.02 and 0.95 over the last five years and recently moved below this trading range. Economists at UBS forecast the pair trading in the 0.90-0.95 range.

Key quotes

“Periods of heightened uncertainty and political risk tend to create pressure on the Swiss franc to appreciate due to its status as a safe-haven currency. This may be more pronounced if the source of the uncertainty involves the ultimate safe-haven currency, namely the US dollar.”

“We may see bouts of CHF strength in the run-up to the election. We think a new lower trading range between 0.90 and 0.95 is likely to be established over time.”

“Apart from currency strength, Swiss equities may be affected by a renewed flare-up in trade rhetoric ahead of the election. Most of the Swiss Market Index’s multinational companies generate only a small portion of their earnings in their home market, so rising trade tensions usually don’t bode well for them. Also, potential changes to corporate tax policy would affect Swiss listed companies, as we estimate that their tax exposure to the US account for up to a quarter of their total corporate taxes. On the other hand, the Swiss Market Index has a defensive sector bias, being dominated by pharmaceuticals and consumer staples while IT-related stocks are significantly underrepresented in the index.”