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30% within hours against the euro, Swiss franc soared. At issue: the deletion of “floor”. Deciphering the mechanism set up in the foreign exchange market.
This “floor” is not, as one might imagine, a minimum threshold for prevent value, currency in this case, falling below a certain threshold and therefore fall.
This is just the opposite for the Swiss franc, or at least it was until Thursday January 15th: the Helvetic central bank decided to remove the threshold which prohibited the currency from falling below 1.20 Swiss francs to the euro … that is to say, to appreciate against the euro <. / p>
The Swiss franc soars in “backwards”
The exchange rates between currencies are not always easy to understand. So, on Thursday, the Swiss franc has “fallen” to a record high of 0.7813 Swiss francs to the euro, but we talked about a “flight”.
Why? The more the value of the exchange rate of the Swiss franc against the euro lower, more, in fact, the value of the Swiss franc increases: it takes fewer Swiss francs to “buy” one euro. What we can see on this graph showing the decline of the euro against the Helvetian currency:
Or, in other words <- - snippet atom!>: The longer it takes to euros to acquire Swiss franc, the higher the value of the latter increases.
Why this threshold?
There are three years the authorities decided helvètes the national currency was already quite strong and feared as a speculation on their currency, considered a safe haven during the crisis.
They instaurèrent Therefore, in addition to negative rates on deposits, “floor “under which the Swiss franc could not be traded. Concretely, we had to pay (commercial banks, in this case) to leave Swiss francs in the coffers of the Central Bank
For another fear appeared. That to suffer from exports less competitive ( because of their high cost relative to competing products exported to weaker currencies). A fear that seems to be true after the end of this mechanism, if one believes, for example, the current manufacturer of Swatch watches, which unscrewed Thursday and lost more than 16%:
Read also: Switzerland waives block the franc against the euro
What are the consequences?
The central bank said that the Swiss franc was no longer overvalued on the foreign exchange market and could not may remove the “floor price”. A failed bet … Thursday, the Swiss media already alerted of euros shortages in some vending machines, such as the Swiss-German newspaper Blick
Winners and losers are their accounts: Swiss doing their shopping in France and border coming to work in Switzerland rejoice, while the Helvetian exporters and affluent expatriates other currencies (including the Russians, but also expatriates paid in euros or dollars) snapping up hair.
In the countries of the East, where the loans in Swiss francs are common (the exchange rate was favorable in the early 2000s), concerns are growing about the high cost of future repayments . In Poland, nearly 40% of mortgages are made in Swiss francs.
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