Growth and interest rates differentials

The bottom line is that growth and interest rate differentials still favor the U.S. dollar over the Swiss franc. Despite concerns over a post-Katrina slowdown, U.S. GDP forecasts are still in the neighborhood of 3.5-3.6 percent overall, while U.S. interest rates remain several full percentage points higher.

“The relative growth differentials are still favoring the dollar,” said HSBC’s Lynch. Nonetheless, Lynch warns that structural issues and concerns, such as the current account deficit and the U.S. budget deficit, could once again rear their ugly and dollar-bearish head. Lynch expected these factors to weigh on the dollar and ultimately weaken dollar/Swiss into the end of the year.

“It’s not as through the growth and interest rate differentials will improve [in Switzerland’s favor],” Lynch says.

“But the Swiss franc benefits by default from weakness in the U.S. We still believe that structural imbalances in the U.S. economy will come back to the forefront and will weigh on the dollar.”