Swiss franc bears rejoiced on Friday when the currency weakened past the psychologically important 1.10 level against the euro – the lowest level since the Swiss National Bank's shock removal of the minimum exchange rate at the beginning of the year.
But something doesn't add up. This turbulent summer in global markets should have seen the Swissie soar, not fall, against the euro as it fulfils its traditional role of a safe haven.
Think again. The Swiss Franc has recently defied its decade-long safe haven status.
As Unicredit's Vasileios Gkionakis pointed out in a note last week " the franc is increasingly showing signs of decoupling from risk appetite; hence, it is unlikely to benefit in periods of market turbulence like the recent one (...) This is because an important mechanism by which CHF appreciates during risk-off episodes – Swiss residents reversing foreign portfolio investment flows – is no longer in place", adding that there is still a "measurable overvaluation gap."
Unicredit believes "there is plenty of room left for the Swiss franc to depreciate further – both against the euro and on a trade-weighted basis", concluding the "Swiss franc is "a stairway to 'haven' no more."
However, some analysts – to some extent - disagree: Peter Rosensteich, Chief Market Analyst at Swissquote Bank tells CNBC :"I still think if larger, macro risk events hit the market, like Greek uncertainty or China growth worries, we would see a flight back to safe-haven CHF."
He adds: "However, baring a major risk-off event, investors will be selling CHF. But in the current environment CHF has become the funding currency of choice."
Rosensteich too remains bearish on the Swiss franc as inflation falls deeper into negative territory – August's PPI figures showed a steeper-than-expected 6.8 percent drop year-on-year , fuelling fears of deflation. Despite dodging a recession as shown by the surprisingly robust economy figures for the second quarter, Rosenstreich stresses:" Swiss growth and inflation outlook is weak and the SNB will keep policy loose, encouraging traders to utilize the CHF as a funding currency for carry trades."
Speaking of the SNB - its next policy meeting concludes this Thursday. The weakening franc will be a welcome relief for the SNB which has been battling the strength of its currency for years, with limited success, as it has attracted safe haven flows throughout the financial crisis and various stages of the European debt.
Goldman Sachs' Dirk Schumacher writes last week:"The resilience of the Swiss economy in the face of the strength of the CHF, the moderate depreciation of the CHF since the June meeting and the limited room for manouver suggest that the SNB will be firmly on hold at its September meeting, despite headline inflation hitting a new low."
Indeed, economists widely expect the Swiss National Bank to keep interest rates at a record low with the target range for the three-month Libor remaining at between -1.25 percent and -0.25 percent, and the interest rate on sight deposits with the SNB remaining at -0.75 percent.
Finally, if the Swiss franc seems to have halfheartedly left the club of safe-haven currencies - who has replaced it?
This may only be temporary however, as the ECB might soon be forced step up its bond purchases to fight stubbornly low inflation.
At least for now though, the new kid on the safe-haven block is the euro, less so the Swissie.