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Swiss Franc Dramatically Rises by 14%

The Swiss Franc has jumped explosively in value during trading today following the Swiss National Bank's announcement that it would no longer intervene to prevent its currency from appreciating any further against the Euro.

The Swiss National Bank has also announced that it will make its already negative rate of interest even more so, meaning that depositors will now have to pay for the privilege of holding deposits in Swiss francs the sum of 0.75% interest per year.

Despite the negative rate of interest, the Swiss Franc was immediately reportedly quoted by up to 30% in value against the Euro. Trading is still jittery, but the increase in value has held up and is settling at an approximate increase of 14% against all the major global currencies. There is at the time of writing no sign of any pull back.

The sudden price movement has also triggered volatility in other currencies, including a reasonably sharp drop in the value of the USD.

Some retail Forex brokers were hard pushed to deal with the volatility, as it was very difficult for a time to even get a quote in any CHF currency pair at the interbank level. Almost all brokers suspended trading in the CHF for a time, coming back on line with enormous spreads in excess of 100 pips. As the dust settles, issues of the execution of pending trades in the CHF will come to the fore. How inter-broker and broker-client disputes which are bound to arise will be settled remains to be seen.

The near-immediate rise in a major global currency of approximately 13% is essentially without historical precedent. The closest parallel is with the sudden depreciation in the CHF in 2011 when the Swiss National Bank announced they would pursue a policy of limiting the CHF at a rate of 1.2 to the Euro.

It is worth remembering that the movement that began that day carried through into long-term continuing weakness in the CHF. It can reasonably be expected that the CHF will now take over from the USD as the strongest of the major global currencies, and continue to rise in value. Forex speculators will begin to build long CHF positions. Long CHF was the most profitable position trade of 2010 and 2011, with the price of the CHF being highly positively correlated with the price of Gold. The effective pegging of the CHF with the EUR meant that many traders effectively ignored the CHF, but it is now very much back on the table as an independent instrument of great interest to speculators.

Adam Lemon
About Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.


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