Post date: January 15, 2015
Information: The Swiss franc ”decouples” from the Euro.
Reaction: Franc goes up 15% versus the Euro
Some times interesting history is created right before your eyes and you never see it happen. January 15, 2015 is one of those days. I do not think that the change in the Swiss franc’s relationship to the euro will register with the average American. The good news is if you are reading this you are above average! The Swiss bank’s move will have serious financial repercussions throughout the world.
Starting September of 2011 the Swiss National Bank (SNB) pegged the Swiss Franc (SF) at 1.2 Euros. As of 1/15/15 they announced that that was no longer the case. The Euro has been falling over the last 6 months and it seems the SNB had had enough of the euro dragging the franc down.
After the announcement the SF rose 30% against the Euro. It settled at +15% for the day. The change made many Swiss companies that export their goods upset, as a strong franc makes their business less profitable. The biggest splash was made in foreign currency exchanges where people are allowed to borrow, and basically gamble, on currencies. People who physically possessed SF had an increase in value, but people who gamble by trading went the opposite way. The federal government allows foreign exchange (FX) companies to leverage at a 50 to 1 ratio. This means that a 2% change in a currency can wipe a day trader out. Hundreds of millions of dollars were lost by traders putting some brokers out of business.
I’m not sure what lesson you want to take from this move. Perhaps Switzerland will not ”peg” it’s price to anything else. Perhaps new FX trading laws will be brought to legislation. Perhaps day traders will learn their lesson. But perhaps, just perhaps, most Americans will move along with their daily lives without thinking twice about what the euro or the franc is worth.