Thursday, November 3, 2011

Spectacular Rise and Fall of the Swiss Franc (CHF)

Over the last few months, the Swiss franc valuation has taken a wild ride at the amusement park. During the height of the Euro crisis in August 2011, their was a significant currency hot money move towards safe haven currencies whereby the Swiss franc was one of the biggest beneficiaries. The CHF peaked at 1.37 USD to buy 1 CHF, today this valuation sits closer to 1.12 USD.

The party came to an end when the Swiss authorities in September 2011 capped the CHF valuation to a level of 1.2 CHF to the Euro (EUR) which resulted in a spectacular 25 cent US correction. But is the hangover from the party over? Purchasing power parity suggest the CHF is still the most overvalued industrialized currency in the world today in relation to the USD with a 72% overvaluation for the CHF.

The Swiss National Bank, the country's central bank has signaled strong intentions to prevent another hot money run on the CHF as a fast dramatic rise in the Swiss franc greatly harms Swiss exports. With Swiss interest rates close to zero and deposit accounts paying 0.5% to 2% for various terms, one may want to take a look at the CHF currency moves as it has shown tremendous price volatility.