Franc Slide Favors Swiss Economy

The Swiss franc fell on Friday and is on track to post its biggest weekly drop against the dollar for more than 22 months after breaking through some major technical levels.

The latest assessment of the Swiss economy from the Kof institute has produced an index reading of 106.8 for July, above last month’s 105.8 and comfortably ahead of forecasts–a shift that will likely be reinforced by the new slide in the franc, news outlets reported.

Kof said the “outlook for the Swiss economy remains favorable” with the strongest drivers coming from the tourist industry and exports.

Though the franc has been edging lower since the start of this year, this latest assessment will capture little of the currency’s abrupt slide this week, which reflects broad strength in the euro as well as the upbeat tone to global markets that dents the appeal of the safe-retreat franc.

Its weakness against the euro was even more pronounced as investors grew more optimistic about euro-denominated assets after recent upbeat comments from policymakers.

“There is some rebalancing flows going through from some model-driven funds after euro/franc cracked through the 1.10 level and with very little option barriers at these levels, this can go higher,” Scotiabank’s head of Asian FX sales and trading, Gerrard Katz, said, CNBC reported.

The franc was trading 0.3% weaker against the dollar at 96.77 cents. It has fallen more than 2% this week, its biggest weekly drop since October 2015.

The currency was down half a percent at 1.133 against the euro and traded below a 200-week moving average for the first time since September 2008, according to Reuters data.

Morgan Stanley strategists expect more losses on the view that the franc remains the “most overvalued currency in the G10 universe” despite this week’s fall.

“The bearish franc trade is an alternative approach to trading better prospects for European Monetary Union economic and political stability,” they wrote in a morning note.

The dollar dipped against its major peers on Friday, with a modest early bounce petering out ahead of the second quarter US economic growth data due later in the session.