Wondering why the Swiss Franc got so Strong? Here’s why
The Swiss Franc is the currency that has continued to increase in value against all other major world currencies including the Euro and the Dollar. It is, therefore, understandable to want to understand why when all other major currencies are dropping in value, the Swiss Franc is gaining ground. There are several reasons for this, and they all have one thing in common; most of them have nothing to do with the Swiss Franc and everything to do with the other world major players.
“It is important to understand that currencies are traded in pairs and, therefore, a currency is strong or weak relative to another currency.” [Tweet this]
There are several factors that make the Swiss Franc so strong. For instance, the onset of the European Debt Crisis resulted in an increased strength Swiss Franc, since most investors flocked to it, which also reduced the value of the US dollar. This factor may be important, but it was not the only reason the Swiss Franc surged to its current strengths.
The Big reason for a Strong Swiss Franc
The Franc reached amazing highest in 2015 for a particular reason or rather one decision. The Swiss National Bank (SNB) made a decision in January of this year that would have far-reaching effects on other currencies, but more so on the franc itself. The SNB unexpectedly decided to remove the peg of 1.20 francs per euro. The result was that the Swiss Franc gained over 30% against the euro and 25% against the dollar. The news was so dramatic it even forced some brokers out of business.
When the markets are in upheaval as they were in 2011 following the eurozone crisis, investors tried to seek refuge in the Swiss Franc. Investors see the Franc as a safe haven due to the Swiss stable government and even more stable financial system.
It may weaken
There are several expected changes in the economic landscape that can cause the Franc to weaken slightly. One of the most promising is the expected announcement by the US Federal Reserve to increase interest rates. While there is no clear indication of when we can expect this announcement to be made, one thing is fairly certain, this announcement will have far reaching effects that may affect the Swiss Franc. To be more specific, it is expected that with the announcement the Euro and the Swiss Franc will weaken against the dollar.
Despite the huge announcement in January of this year the Swiss National Bank has stated that it may intervene again if necessary. This means that all we can do is wait and see what the market has in store and just how strong the Swiss Franc can be. More importantly, you have to keep a watchful eye on the economic interventions planned to see how they will affect your trading activities.
How did the Strong Swiss Franc affect you and your trading activities? Let us know in the comments section below.
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