The Swiss Franc

The economy of Switzerland is known for being one of the world’s most stable economies. Its’ stable monetary policy and political stability has made Switzerland a popular destination for investors during financial crisis. Therefore the Swiss Franc tends to rise always during financial crisis because investors lose confident in other currencies and want to invest in something secure. During the last few months people have been selling US dollars because of fear that the crisis in the US will last for longer and the economy is showing relatively negative figures quarter after quarter. In the Eurozone people have been avoiding and trying to sell euros because of the uncertainty about certain countries like Greece, Spain, Portugal and Ireland.

As seen on Euro-Swiss franc graph above the Swiss Franc has been getting stronger since the financial crisis started in 2008.

The Swiss government was running out of options and had been giving out warnings saying they would do everything in their power to keep the Swiss Franc low. On the 17th of August it was announced that the Swiss government had decided to allocate 2 billion Swiss francs to support the economy and mitigate the effect of the strong Franc.

This announcement was not enough to keep the Franc stable as can been seen on the graph so on the 6th of September the central bank decided to put an floor to the Swiss Franc. The announcement resulted in the single largest foreign exchange move that traders have seen for a long time. Against the Franc the euro rose 9%, the dollar gained 7.7% and the pound climbed 7.8% within minutes of the announcement. The Swiss government supports the Central Banks decision even though there have been some disagreements about this bold action.

Most analysts say this will have good impact on the Swiss economy. As explained in the beginning of the blog but in my next blog I am going to look at other impacts this might have for the global economy and how Switzerland just entered a currency war with Japan and other countries.

Graphs:

http://www.google.co.uk//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1317663950785&chddm=2813097&q=CURRENCY:EURCHF&ntsp=0

http://www.google.com//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1317769200000&chddm=73420&q=CURRENCY:EURCHF&ntsp=0

Further reading:

http://www.bbc.co.uk/news/business-14801324

http://www.ft.com/indepth/swiss-economy