In Europe, Switzerland is an Island
Switzerland’s central bank surprised the global markets on January 15, when it abandoned the cap on its currency’s value against the euro. Back in 2011, the Swiss central bank pegged its currency at 1.20 Swiss francs per euro.
Why? Because Switzerland has long been considered an economic safe haven, with investors wanting to hold the currency as a hedge against economic uncertainty. Before the cap was put in place, the strong Swiss franc and weakening sales to the economically ravaged eurozone (and U.S.) put a strain on Switzerland’s economic growth.
The Swiss central bank saw a strong currency as a threat to the nation’s economy, especially in light of the eurozone, which is straddled with debt and teetering on recession.
Enter the currency cap.
In 2011, the year the cap was introduced, Swiss companies had to cut prices by more than five percent just to keep exports alive. This isn’t a total surprise when you consider that Germany, the biggest economy in the eurozone, is Switzerland’s largest national trading partner; the U.S. comes in a close second.
But the tides have changed since 2011. The eurozone is still an economic mess, but the U.S. has experienced an economic renaissance, with a Swiss franc pegged with the euro now weakened significantly against the U.S. dollar.
Switzerland Lets Currency Run
To help shore up its currency, the Swiss central bank made the sudden move to unhinge its currency from the euro and let it run free. After the unexpected announcement, the Swiss franc soared 30% against the euro, while the Swiss stock market fell 10%.
The market fell because a strong Swiss franc means it will be more expensive to purchase products made in Switzerland. This could negatively impact exports, as the European Union accounts for the majority of the country’s exports. A higher Swiss franc could also hurt tourism.
While many question the Swiss national bank’s move, the fact is that it might have been a shrewd move. It has long been expected that the European Central Bank will formally announce it is adopting a generous bond-buying program, known as quantitative easing (QE), at its next meeting or subsequent meeting in March.
In light of any QE measures, a strong economy like Switzerland, pegged to a fragile currency like the euro, would face further pressure.
Learn-To-Trade.com Inc. Investing Courses
While all this uncertainty in the eurozone, European Union, and Switzerland may deter some investors from getting involved in the markets, there are strategies and tools that can help you profit, no matter which direction the global markets are heading. In fact, investors can use the uncertainty to strengthen their investing portfolio.
No matter what your investing experience, the licensed, professionals at Learn-To-Trade.com Inc. can teach investors proven financial strategies that can help them profit in any environment.
For information on Learn-To-Trade.com Inc.’s trading course or Lifetime Membership or to sign up for one of our free two-hour trading workshops, e-mail us at email@example.com or call us at 416-510-5560.
Allen, M., “Exporters pick path through economic minefield,” SwissInfo.ch, February 13, 2012; www.swissinfo.ch/eng/specials/swiss_franc/Exporters_pick_path_through_economic_minefield.html?cid=32112416.
Latest posts by George Karpouzis (see all)
- Rebounding Canadian Economy Points to Even More Rate Hikes in 2018 - July 26, 2018
- As Fears of a Global Trade War Ramps Up, Investors Look for Best Places to Park Their Money - July 19, 2018
- More Than 1,000 Cryptocurrenices Have Failed in 2018 and Most Investors Don’t Understand the Risks - July 12, 2018