The Swiss Franking

The Swiss National Bank (SNB) shocked the world with its decision to remove the Euro floor. The franc declined over 15% versus the Euro. Since August 2011, the SNB had been defending the EUR/CHF exchange rate at 1.20 level. It decided to do that after the EU fell in grips of various crises and the franc appreciated 40% against the euro from 1.6800 in December 2007 to 1.007 in August 2011. The bank established the floor only against the euro and not against other currencies; however, the vagaries of forex market ensured that there were effective floors against other currency pairs too.

The impact of this floor was that Swiss exporter were having an easier time as their currency was not appreciating and their high wages were supported by the sales. Despite this the country was having lower inflation and flirting with deflation.

The January 15th, 2015 decision by SNB has created a havoc in the market. The EUR/CHF has fallen through the floor. The dynamics between Swiss economy and other major economies hasn’t directly changed but the impact of Switzerland/EU trade is so much that other currencies have depreciated a lot. Now the Swissy is getting back to it earlier role of a safe-haven along with Japanese yen and US dollar. In times of great uncertainty and fear, these currencies usually defy normal forces of forex market.

Here are some of the weekly charts of Swiss franc with its various trading partners demonstrating the impact of 2011 and 2015 decision by SNB to establish and then remove the floor with euro.

Here is with Euro:EURCHF_150113_WHere is with Greenback:CHF_150113_WHere is with British Pound:GBPCHF_150113_WHere is with Aussie:AUDCHF_150113_WHere is with Canadian looine:CADCHF_150113_WHere is with Swedish krona:CHFSEK_150113_WHere is with Norwegian krone:

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