Since the onset of the sovereign debt problems, EUR and CHF have behaved very differently. Monetary conditions in Switzerland are now much tighter than in the Eurozone, so it is unlikely the SNB will follow ECB rate rises. The behaviour of EUR and CHF has interesting implications for the Eurozone. Imagine that the EUR had been split into two currencies in 2009, EUR-core (EUC) and EUR-periphery (EUP). Given the close association between the Swiss and German economies, EUC-CHF would probably have been fairly stable. Assuming EUC-CHF had remained at 2009 levels this would imply a current EUC-USD of 1.78 and EUP-USD of perhaps 1.10.
EUP area exports would probably be performing better and fiscal consolidation would have been made easier if there was the prospect of growth. Inflation in the EUC area would be very low and the EUC central bank may not have needed to raise rates. Relative competitive positions within the Eurozone would be very different with the EUC area much less competitive.
HSBC Global Research