ONE of the strongest trends in the currency market this year has also been one of the least noticed. While the majority of currency traders have been focusing on dollar-yen as risk aversion flows pushed that pair to 15 year lows, the Swiss franc has quietly forged a massive rally of its own against the euro while reaching near parity status against the dollar. Since the end of last year euro-Swiss franc has fallen steadily from SFr1.5000 to hit a new record low of SFr1.2920 early this week as the Swissie has become the preferred currency alternative amid the sovereign debt concerns in Europe and the double dip recession fears in the United States.

Some analysts are now calling the Swiss franc the “new deutschmark” due to the strength of the Swiss economy, the country’s massive capital reserves and the franc’s traditional status as a safe haven instrument. Given the strength in the underlying economy, the Swiss National Bank (SNB) under normal conditions would have already moved away from its ultra accommodative policy by raising rates from their record low of 25 basis points. But the persistent rise in the franc has curtailed any tightening measures, and the strength of the currency itself appears to have curbed any nascent inflationary pressures.

For now Switzerland is enjoying the best of all worlds as its economy continues to expand despite the strengthening franc while inflation remains contained. However, if Eurozone growth begins to wane into the end of the year while at the same time sovereign debt concerns precipitate a further fall in euro-Swiss franc, the economic picture for Switzerland may no longer look nearly so benign. The country’s critical export sector could face a much more challenging environment in 2011 and the SNB would then face a much tougher task of combating the rise of an already record high Swiss franc just as growth begins to slow. Swiss monetary officials may be forced to intervene in the markets if the euro-Swissie pair hits SFr1.2500 and dollar-Swissie breaks parity. However, despite their best efforts the rally in the Swiss franc is likely to continue as long as global economic uncertainty persists.

Boris Schlossberg and Kathy Lien are directors of currency research at GFT. Read commentary at or e-mail