The Swiss franc is considered one of the most attractive currencies (if not the most attractive) nowadays as the strength of the franc makes it preferable as a safe haven. With all the financial turmoil in Europe and America the safety of the currency is in high demand among investors. But the Swiss National Bank announced last week that itâs going to take measures for taming the excessive appreciation of the Swiss currency. How this step will affect the franc? Letâs look at the history of the bankâs decisions to see how interventions usually affect the currency.
On March 12, 2009 the SNB decided to lower its main Libor rate, putting it the range 0 â 0.75%, while targeting the lower end of the range at about 0.25%.
The Swiss National Bank (SNB) is making another interest rate cut and acting to prevent any further appreciation of the Swiss franc against the euro.
The franc reacted immediately, falling against the US dollar and the euro. USD/CHF jumped, but on the very next days it started to decline and on the fourth day after the intervention posted a sharp drop, that was stronger than rally after the intervention. EUR/CHF reacted more favorably to the monetary decision, showing stronger advance compared the dollarâs rally and keeping gains for almost the whole year.
As of June 18, 2009:
The Swiss National Bank (SNB) is continuing the policy introduced in March whereby it implemented a firm relaxation of monetary conditions.
That decision hasnât had any noticeable impact on the currency. The franc actually slumped on June 24, but the monetary decision apparently wasnât responsible for that drop.
By September 17, 2009:
The Swiss National Bank is maintaining the expansionary monetary policy which it initiated last March.
Anyway, the bankâs policy decision hadnât any impact on markets whatsoever.
The global economic recovery was underway as of December 10, 2009, but the SNB was still concerned about the impact of the strong franc on Switzerlandâs economy and announced:
The Swiss National Bank is maintaining its expansionary monetary policy.
USD/CHF hasnât felt the decision of Switzerlandâs central bank as the dollar was already rallying against the franc. The strength of the franc against the euro was the main reason for concerns of the SNB, though, and EUR/CHF indeed changed its trend, but only several days after the decision and in the opposite direction to the central bankâs plans. The euro started its freefall against the franc at December 16 that continued till these days.
The story remained the same by March 11, 2010. The SNB announced:
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. Consequently, it is leaving the target range for the
The dollar again hasnât felt the decision. The euro again dropped several days after the move.
The euro, together with the dollar, was falling against the franc as of June 17, 2010 and the Bank decided:
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. Consequently, it is leaving the target range for the
The currencies havenât paid heed to the bankâs attempts to rein the francâs appreciation.
The course of the SNB remained the same as of September 16, 2010:
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. It is leaving the target range for the
USD/CHF jumped after this announcement, but resumed its decline on the next day. EUR/CHF reacted more positively and was rallying till the end of October.
Switzerlandâs central bank repeated its statement on December 16, 2010:
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy.
Unfortunately for the bank, the dollar and the euro were too busy sliding versus the franc and havenât heard the statement.
The SNB repeated the same statement yet again on March 17, 2011 and said that:
It is leaving the target range for the
This announcement had a
The SNB reiterated its statement on June 16, 2011:
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. The target range for the
Again, the announcement remained without a noticeable effect.
The history lesson is finished. It’s time to asses the present behavior of the franc. The central bank announced on August 3, 2011:
The Swiss National Bank (SNB) considers the Swiss franc to be massively overvalued at present. This current strength of the Swiss franc is threatening the development of the economy and increasing the downside risks to price stability in Switzerland. The SNB will not tolerate a continual tightening of monetary conditions and is therefore taking measures against the strong Swiss franc.
The SNB narrowed the range for the Libor rate to 0 â 0.25% and boosted liquidity for the Swiss franc. What impact of this move on the Swiss currency can be expected? But a better question is: should any effect be expected at all? How often a statement had any influence on the currencyâs performance? Recalling all the previous expamles, one can say: not often and what impact it made was
Since the SNBâs last quarterly monetary policy assessment, the global economic outlook has worsened.
Thatâs the sad truth: the global economy in turmoil, the US and European economies stand on the brink of a
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