The dollar is bad, here is its impact on the Swiss

Unpredictable American economic policy has put an end to the overvaluation of the dollar.Image: keystone

Invest in foreign currencies when you live and calculate in Swiss francs? As a rule, you will lose feathers, at least in the long term. However, over the past six months is observed a risk linked to the higher exchange rate than custom.

Daniel Zuglauf, Vesa Llapaj / CH Media

Investors certainly know this quote from Goethe. And they would do well to follow his instructions in terms of promising behavior. Some of its wisdoms nevertheless come up against the reality of the financial markets.

This year, investing in foreign actions – and especially American – was not a very good idea. Since the beginning of January, the dollar has lost more than 12% compared to the franc And he has just passed below 80 cents for the first time in almost fifteen years.

From a Swiss point of view, the exchange rate can transform positive action yields abroad into significant losses when they must be converted into francs. This risk has therefore constituted this year a good reason in Switzerland to think twice before betting abroad.

There is certainly an exceptional negative effect of exchange rates on the performance of American actions during the last half. But Swiss financiers who invest out of borders must in fact always compose with this parameter.

In 1973, when the Bretton Woods global monetary system burst, the currencies of the main industrialized countries of the time in the currency market and demand on the currency markets were abandoned. A dollar was still worth almost 4 francs.

Overvalued dollar

The depreciation of the dollar, the famous “greenback”, is systematic and linked to the fact that inflation rates have exceeded Swiss values ​​for many decades. The phenomenon has been reappeared with more strength since the last global increase caused by the COVVI-19.

At the start of the year, a Big Mac cost the equivalent of $ 7.99 in Switzerland, but only $ 5.79 in the United States. With a dollar, the Americans could therefore afford more Big Mac than the Swiss with the same amount of money. In the jargon, the dollar was overvalued compared to the franc. The next publication of the Big Mac index in July will show price alignment due to the dollar crash.

Economic theory assumes that the different international price levels of exchangeable goods must equal through the exchange rate. This concept is called the parity of purchasing power. The Big Mac index of the British weekly The Economist illustrates this effect well in a fun way, although not quite exactly.

But exchange rates almost never evolve at the point of balance as it is calculated with the instrument of the parity of purchase powers. In the currency markets, the courses get carried away upwards and perhaps today also downwards.

Anastassios FRANGULIDIS, chief economist of the Geneva private banking Pictet, notes that the Customs Massue of Donald Trump of April 2 also impacted the American currency. The dollar was certainly straightened a week later, when the president somewhat attenuated, temporarily at least, his shattering announcements.

But the greenback did not find its force of yesteryear:

Unprofitable speculation on currencies

This development can continue, especially since the American debt policy has meanwhile cast doubt on the solvency of the State. The United States is still part of the exclusive club of countries whose debt is very well rated. But the demotion of the highest solvency class had the consequence that investors, especially foreigners, now demand a higher interest rate (risk premium) on American debt securities.

An obligation of the US Treasury lasting ten years currently reports almost 4.3%. A comparable Swiss federal loan has only one return of 0.41%. At first glance, investing in American bonds therefore seems obvious. But Erwin Heri is armed to answer such questions, both theoretically and practical. Here are the explanations of this professor from the University of Basel, also a former investment director of the Wintethur Assurances and partner of the Fintool financial education portal:

He believes that Swiss investors have more to lose than winning in the long term, even in foreign action markets. Erwin Heri is spectacularly right for this year, and he does not surprise it. Exactly two years ago, he explained very clearly on Fintool, “why the dollar and the euro will fall to 80 cents”. Reason invoked: the decline in inflation in Switzerland. A beautiful compliment to the National Bank, which has just celebrated the 175th anniversary of the franc.

A recent Migros Bank survey reveals that many Helvetians hesitate to withdraw money from their savings account to invest it on the stock market. This is explained, among other things, by the fact that, for decades, bank savings hardly loses value, even with a low interest rate. And this, by the way, with a relatively low risk.

However, the actions prove to be more remunerative in the long term. The surveyed by the Migros bank also know this and display their desire to invest more in this way to boost the performance. There remains the question of timing. Monsieur and Madame Tout-Le-Monde are perhaps notoriously careful in this area. But, at present, it seems rather judicious.

Translated and adapted by Valentine Zenker

Pascal Grieder succeeds Roberto Cirillo at the head of La Poste. He will take office in early November.