The Swiss Franc - where to now?


target against the Deutsche Mark to avoid further appreciation.


To consider the level of the franc moving forward, ZH ÀUVW QHHG WR VHH ZKHUH LW FDPH IURP DQG ZK\ Looking back at the period prior to the recent ÀQDQFLDO FULVLV ZKHQ LQYHVWRUV VHDUFKHG IRU \LHOG in a low volatility environment, the franc was used as a funding currency for carry-trades. As a result it gradually weakened to EUR/CHF 1.6847 by the HQG RI 2FWREHU )ROORZLQJ WKH ÀQDQFLDO FULVLV however, when carry positions were unwound and investors sold overvalued currencies such as the Australian and New Zealand dollars to buy back their shorts in yen and franc, the franc appreciated to EUR/CHF1.5000 where it range traded until November of 2009.


It is worth noting that the franc’s appreciation was PXWHG GXULQJ WKH ÀQDQFLDO FULVLV ZKHQ FRPSDUHG WR the yen and the US dollar. This was because the Swiss economy had a heavy dependence on the banking sector and as an open economy was closely linked to the global economic environment.


The more recent move from EUR/CHF 1.5000 in November 2009 to EUR/CHF 1.0075 in August 2011 has been partly due to the euro debacle and


44 Currency Investor | Autumn 2011


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