The Swiss Franc Skyrockets, Effects Felt Globally

Known for its stability and sense of reduced risk for investors throughout the world, the Swiss franc’s value surged last week, causing investment firms tremendous losses and increased prices of Swiss goods.

The Swiss National Bank (SNB) terminated its policy of maintaining a cap on the value of its currency. It originally instated this policy to curb the overvaluation of the Swiss franc. However, the SNB issued a statement on the day the policy was removed.

“The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.”

Because of the losses it incurred due to the SNB’s policy removal, the New Zealand foreign exchange dealer was forced to close. Similarly, the London-based interdealer broker, IG Group, forecasted that it would lose approximately 30 million pounds ($46 million).

Many are uncertain as to where the Swiss franc will go from here. According to the Wall Street Journal, the Swiss stock market decreased by nine percent the day the SNB revoked its policy.

“A strong franc is bad news for the very export heavy Swiss market. Companies like Nestle and Swatch are going to find it tougher to sell their products abroad with such a strong franc.”

Dealers speculate that the SNB revoked their policy because it was known that the European Central Bank (ECB) would move into quantitative-easing, printing hundreds of billions of euros. However, as Reuters further indicated, “the view that the SNB move was a sign the ECB would announce outright money-printing in an effort to combat deflation in the euro zone drove the euro to a fresh 11-year low against the dollar EUR= of $1.14595 on Friday. The euro was last down 0.6 percent to trade slightly up from the 11-year low, at $1.15635.”

Furthermore, according to the SNB‘s president, Thomas Jordan, the Bank acted without warning.

“You can only end a policy like this by surprise. It is not something you can debate for weeks.”

Nonetheless, one company in particular, did not feel the negative effects of the SNB’s policy removal. According to Forbes, the Goldman Sachs Group has seen no impact on its financial front. In fact, the company’s chief financial officer, Harvey Schwartz, praised the SNB’s removal of the policy.

“For us it is an opportunity for high level engagement with clients who need liquidity.”

[Featured Image Courtesy of Martial Trezzini/European Pressphoto Agency]