Swiss Franc Soars as Swiss End Euro Peg

Did anyone really think the Swiss Franc will remain artificially depressed forever? Well, it happened again: the Swiss franc (CURRENCY:CHF) was officially freed from its euro peg and the Swiss franc did what it was bound to do. Traders who bet on the currency experienced a nice 30% pop against the euro for their troubles. CHF gave up some of its initial surge in value to settle at a still hefty 15% appreciation against the euro.

First, any government intervention in market pricing mechanisms tend to become an endurance race that governments often find very hard to keep up. The Swiss government’s policy of artificially depressing the CHF’s value is definitely not immune to this fact. It takes a lot of money to keep market pricing forces as bay. The Swiss finally gave up after three years of buying euros to keep the Swiss franc’s value down. The Swiss adopted this monetary policy to protect the global competitiveness of Swiss products ranging from luxury watches to chocolates. Apparently, it could no longer keep the Swiss franc artificially low because of the second reason for the rise-the CHF is normally a ‘refuge’ currency. In times of global economic uncertainty, investors are always looking to safeguard their asset values by parking some of their liquidity in solid stores of value. The Swiss franc has historically been regarded as a safe currency that isn’t prone to devaluation. With the euro peg gone, currency investors promptly swept up Swiss francs driving up its value.

Global currency exchange pricing is all relative. Instead of focusing on whether one currency in a currency trading pair is absolutely strong or has superior fundamental intrinsic value, currencies are judged simply based on how strong they are relative to the currency they are paired against. Considering the euro’s woes lately, the Swiss franc is definitely looking great. If anything, the Swiss decision to take off the euro peg spells even more trouble for the euro in the short to mid-term. Think of this is a vote of ‘no confidence.’