Swiss Franc – Quo Vadis ?

A picture tells a thousand words. From its high in 2008, the EUR has lost almost one third of its value… ONE THIRD vis-a-vis the CHF. Even more alarming: the USD is 44 percent cheaper than the CHF than it was 10 years ago…

Yesterday’s intervention by the Swiss National Bank was meager at best. Today, the press is challenging more evasive actions – but there is not a consensus for what is the “right” thing to do.

Here is the SNB press release from yesterday:

The actions taken were not enough. Despite them, the franc rebounded by the end of the day. Look East to Japan. Ditto. There is some speculation that there could be a coordinated intervention … but this is not probable considering the overall importance (i.e., lack thereof) of the CHF in the world forex markets…

So, what is your opinion? What will happen? What will the effects be on Swiss business? On Swiss consumers?

Should the SNB intervene again, this time more heavily? How? How about the FED and the ECB?  With interest rates already at zero, what can be done other than pump more money (print it??) onto the market?


5 thoughts on “Swiss Franc – Quo Vadis ?

  1. I think it was about time for the SNB to do something – anything, about the situation with the CHF. I think what has partially exacerbated the problem is the fact that the SNB didn’t even recognize this as a problem until now – this must have been very frustrating for the Swiss business community. I see a lot of parallels between the moves from Moody’s and S&P a few weeks ago about the US debt limit deal and Swiss companies talking about cutting their cost basis in Switzerland: it is as if the parents (the rating agencies and Swiss businesses) are disciplining the children (the governments).

    I do not think that the flight to the CHF is entirely due to safe-haven demand: I think a big portion of it is as a result of the fact that until recently, the world, and even Switzerland itself, saw Switzerland as an island immune to any of the woes its major trading partners are having, which is unthinkable in an export-oriented economy. In that sense, much of the demand for CHF was driven by demand for CHF assets due to good economic outlook and low unemployment rate. If the economic outlook starts to worsen and the unemployment rate starts edging up, some of the demand for the CHF will subside, thus helping Swiss businesses and the economy. If that’s accompanied by the SNB printing money, I believe the effects on correcting the CHF’s price would be amplified. If there is no QE in Switzerland, the currency will appreciate even more in the near to medium term, considering that the Japanese are also planning some sort of QE.

    My opinion is that Swiss authorities should be very careful not to alienate Swiss banks and businesses in the same way this has been done in the US and the EU. If the same happens in Switzerland, nothing that the SNB does will be effective; companies and banks would just sit on their cash as they are currently doing in the US, and there will be a “soft patch” and there will be higher unemployment. The emphasis should be on preserving Switzerland’s status of one of the countries with the most favorable business climates in the world and restoring the business sector’s confidence.

    As for the US, I think they will be focusing on job growth over the next year, especially with elections next fall. I am afraid that it will be more politics than anything else, however; all talk and no action. And they really can do very little to make companies hire because there is too much uncertainty as to the environment businesses will be required to operate in and the actual cost of hiring an extra worker. It will be wait and see for a long time and very painful.

    As far as the EU is concerned, its problems are far more complex to fix than the US’ – there are just too many cooks in the kitchen and everyone has their own agenda.

    Regardless of what happens in the US or the EU, however, the SNB has to intervene and decisively, because once the jobs are gone, they are gone.

    • thanks for your insights… so what do you think the SNB can and should do to intervene? They can lower interest rates a bit – into the negative zone, or print money. History has shown that single government intervention alone is not enough…

      • I think the SNB should print money. It won’t solve the problem altogether but it will start putting some sort of downward pressure on the CHF. That’s how the USD started falling last fall, and that decline was amplified by several months of bad ecocnomic data and the debt ceiling fiasco. I also think outside “safe-haven” factors such the US defaulting on its debt and the EU sovereign debt crisis will start fading while at the same time there will be some not as rosy economic news from Switzerland as we are used to seeing. So, it will be a combination of different actions – some within the SNB’s control, and others – not so much.
        I have a question as well: do you believe all of the demand for the CHF has really been “safe-haven” and if not, how much is … something else? Since I don’t believe that many rational investors actually thought that the US would default on its debt or that the EU would split up …

  2. Yes, I definitely believe that the CHF is definitely a safe-haven currency for many US investors in particular. This has been the history of the CHF and hopefully will continue to be – but perhaps not at such an indiscreet exchange rate. No rational person thinks the US will default or that the EU will split up, but we all know that people – and therefore markets – do not behave rationally.

    • There has been some talk in the past couple of weeks of coordinated action to address the sovereign debt mess and all the fall-out from it by the G-20 countries or at least most of them. Even though it seems improbable that they would come to an agreement, do you think that’s the only way to fix the current situation? Individual governments seem to have run out of ammunition and whatever little they have left, it doesn’t seem to be working.

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