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."