Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
The Swiss central bank has pulled the plug on the euro and the euro has dived across the board and crashed against the Swiss franc.
So this is the background. During the euro crisis huge waves of hot money swamped the Swiss franc as fear of a euro collapse made international funds dash for safety. The Swiss franc span upwards out of control. This was terrible news for Switzerland. How can you export your goods to the world when your currency is so high it is better than gold?
The answer is to peg yourself to the offending currency and buy it to pull the price of your currency down. In effect you say, “you want my currency, then have it, I’ll print it.” You are then flooded with foreign currency reserves, which is a nice result and your currency doesn’t rise to the moon. You can always buy back your currency with that money and probably turn a fat profit.
So that is what Switzerland did. It pegged the Swiss franc to the euro.
Now it has said, “let’s forget that, time to let the market take its course.” Boom, this is what happened next:
This shows the scale over 3 years and the operation of the peg:
This has completely crashed the euro against the Swiss franc and will be bad news for the Swiss economy. It has smashed the euro against other currencies too because up till this morning the euro has been supported by the Swiss franc peg.
The Swiss franc meanwhile has gone wild again, all currencies producing massive windfall profits for anyone holding Swiss francs.
This is the dollar Swiss franc, with the dollar falling 13%:
The markets in general have been getting wilder and wilder. Oil crashed and now the Swiss franc has gone insane.
There are wild times ahead.
Clem Chambers is CEO of the leading financial information and investors website ADVFN and author of books including ADVFN’S Be Rich, The Game in Wall Street, Letters to my Broker, The Death of Wealth and 101 Ways to Pick Stock Market Winners, all out now in paperback and on the Kindle and iPad. His latest financial thriller Dial Up for Murder is available now.
Subscribe to Clem’s Premium Newsletter: Diary of a Contrarian Investor.
