What Future For The Swiss Franc?

We have seen a tremendous strengthening in the Swiss Franc which started in late 2008, however this strengthening accelerated this year and in particular in August when we saw the Swiss Franc gain 10% in a few days.

 

Apart from providing bargains across the borders the strong Swiss Franc can have tremendous negative implications for Switzerland and the companies operating in Switzerland with a cost base in Swiss Franc.

The Swiss National Bank already tried to prevent this strengthening by actively in the global currency markets sell Swiss Franc and in particular buy the EUR back in 2009 which cost Switzerland in the region of 45 Billion Swiss Franc.

For many it can be a wonder why the sudden interest in buying the Swiss Franc and it can be easy to point fingers at speculators but it is more likely the purchasing by non-speculators that simply wanted

as little risk as possible. With all the uncertainties on global debt and stock markets plummeting the Swiss Franc seemed like the best and safest option to park your money.

But with a global risk sentiment improving last week and the Swiss National Bank providing liquidity and being very active in persuading the markets that they have the means and commitment to prevent a further strengthening of the Swiss Franc we saw the currency weaken more than 10% in three days.

There is much speculation on how the Swiss National Bank will be able to prevent the Swiss Franc strengthening further and it will be interesting to see what kind of tools they will use but one thing is almost guaranteed and that is that interest rates in Switzerland will continue to be low for the foreseeable future.

For now the Swiss Franc has stabilized against the EUR and there is a good possibility the Swiss Franc will weaken further againstthe EUR in the coming year but with the Federal Reserve promising to hold interest rate at zero expect New York to continue to be cheap for shopping.

Naturally the strong Swiss Franc and cheap financing can present opportunities with the right strategy and moreover there are also opportunities in the currency market to receive interest due to the carry factor and to secure a favorable exchange rate for a possible holiday home purchase in the coming future.

One negative implication that affects expats living in Switzerland directly is the possibility that companies will strive to move jobs and staff away from Switzerland to minimize the cost base in Swiss Franc.

If you have any questions how to act in these volatile times in the currency markets please do not hesitate to contact advisory@act-currency.ch

This article was provided by ACT Currency. The views and opinions expressed are purely theirs and zurichexpats.com does not offer any warranty as to its validity.


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