Franc strengthens against the euro: Stucki’s forecasts

Context

TL;DR

• Stucki sees the franc stronger against the euro by year-end
• The exchange rate fell from 95 to 93 cents
• France's deficit is about 5% of GDP
• The SNB should not change interest rates immediately

Key facts

• Expert → Thomas Stucki, head of investments at St. Gallen Cantonal Bank
• Source → interview published by the Cash portal
• Exchange rate → the euro fell from 95 to 93 cents
• France → budget deficit close to 5% of gross domestic product
• Nominal growth → 1.9%
• Inflation → 1% in September
• US rates → ten-year yield reached 5.25%
• Next rate increase → expected only for next year

Thomas Stucki, head of investments at St. Gallen Kantonalbank, expects the franc to strengthen against the euro by the end of the year. The warning, reported by ATS, comes after a new phase of tension on the European bond market, which has rekindled doubts about debts, budget discipline and structural divergences in the Eurozone.

The euro, explains the expert in the interview published by the Cash portal, had been able to present itself as an alternative to the dollar for large investors intending to reduce exposure to the American currency. Now the same operators are being reminded that the fundamental problems of the Eurozone have not been solved.

The tension was reflected in the gearbox. In a short time, the Swiss currency appreciated and the euro rate dropped from 95 to 93 cents, before stopping temporarily. For Stucki, the first reaction has passed; the breadth of the movement also depends on the surprise of many bulls on the euro. A return to summer levels of strength appears unlikely, as the French issue will remain under observation.

France and Swiss rates

French finance is the most delicate point of the analysis. The budget deficit is around 5% of gross domestic product, while the nominal growth of the economy reaches just 1.9%. The debt/GDP ratio is therefore destined to rise and, according to Stucki, there is no political will to adopt austerity measures. Ahead of next year's presidential elections, populist parties at opposite ends are instead promising to hand out more money. The youth protests and the government's impotence, he adds, do not communicate the image of a stable and reliable debtor.

By the end of the year, the forecast is for the euro to be weaker than current levels but still above 0.90 francs.

«Our forecast remains unchanged: we had already considered the euro's rise to almost 95 cents unsustainable».

The strengthening of the franc reduces the price of imported goods and helps to contain inflation, but the speed of the movement still poses a danger to the SNB. With inflation at 1% in September, prices remain in line with the objectives of the institute directed by Martin Schlegel, so there is currently no reason to change rates. According to Stucki, the SNB should sooner or later leave rates at zero: the next step should be a hike, while the first tightening is only expected next year and will depend on the trend in rates abroad.

Operational details

Practical impact for Switzerland

The move from 95 to 93 cents shows how quickly the euro-franc exchange rate can change when investors seek a safe haven. For people living in Switzerland, the consequence identified by the source is seen in imported goods: a stronger franc lowers their cost and can help curb inflation. It provides support for the cost of living, not a promise that every price will fall immediately or by the same amount.

The other side concerns the SNB. Inflation at 1% in September remains compatible with its objectives, but a rapid appreciation of the franc is described as a greater and more likely risk than a weakening. The bank must therefore weigh two signals together: lower import costs help keep prices down, while sudden demand for the franc shows that currency conditions can change quickly. For a Swiss budget, the benefit of lower import costs coexists with exchange-rate uncertainty.

Three interpretations not to conflate

The table separates observations and expectations. As for the exchange rate, the year-end estimate remains that the euro will be weaker than current levels but above 90 cents. As for interest rates, Stucki does not see an imminent turning point. These are different horizons: the first concerns the value of the currency, the second the cost of money.

Stock markets also require a less mechanical interpretation. The move above 5% in ten-year US government bond yields has not so far triggered a widespread flight from stocks; yields reached 5,25%. For Stucki, there is no threshold that automatically moves investors into bonds. The greater risk would be a rapid and uncontrolled increase, a sign of fear about the economic stability of the United States. Investments in artificial-intelligence infrastructure continue to support stock indexes. To track the effect on costo della vita in Svizzera, pair the exchange-rate data with the price data. The comparatore CHF/EUR makes it possible to observe the relationship between the two currencies.

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Key points

Operational checklist

The source does not indicate an administrative deadline or a single procedure. For those who need to find their bearings in Swiss economic life, the possible action is a three-step check, anchored to the timing and signals cited by Stucki.

1. Separate observed exchange rate and forecast

First, record the level you are looking at and compare it with the two points indicated by the source: the euro had fallen from 95 to 93 cents, and the year-end forecast keeps it above 90. Use the comparatore CHF/EUR to read the ratio without confusing a market change with an SNB decision. The forecast is not a guarantee: the movement also depends on tensions in the bond market and the situation in France.

2. Check the effect on the budget

In the second step, separate items related to imported goods from other expenses. According to the source, a strong franc reduces the cost of imports and helps contain inflation; the check is therefore intended to understand where the effect may be visible, without automatically attributing every change to the exchange rate. To compare the impact on spending, use the costo della vita in Svizzera. The 1% inflation reading in September does not by itself warrant forecasting an immediate change in interest rates.

3. Keep the two horizons distinct

On the monetary front, consider the present and next year separately. Stucki does not anticipate an imminent shift; the first tightening is expected only next year and will depend on interest rates abroad. There is therefore no need to base a decision on a more precise date, because the source does not provide one. The check to repeat concerns the evolution of foreign interest rates and the speed of the franc’s strengthening.

4. Read the stock markets beyond the threshold

On the financial side, the correct check is not to ask whether the US 10-year yield has surpassed 5%: it has already reached 5.25% without a generalized flight from equities. The question indicated by the source instead concerns the speed and intensity of the increase. A disruptive event, comparable to the shock of the tariffs announced by President Donald Trump in April 2025, would be the scenario necessary for a jolt of that kind. Investments in artificial intelligence infrastructure meanwhile remain a source of positive news for market indexes.

This sequence avoids mixing exchange rates, prices, interest rates and stocks. To translate the different scenarios into your own budget, use the calcolatore stipendio/imposte.

Source: swissinfo.ch