The safety nets of the world seem to be getting more leaks as the Swiss franc has been witnessing major appreciation as the safe haven reached as high as 1.0257 against the Euro Aug 11th. The Swiss franc has risen 31% over the past year against the euro.
The Swiss franc has long been regarded as a safe haven asset; this is due to the fact that it has a strong fiscal policy, strong economic growth potential, low unemployment and debt burdens. Switzerland’s debt is about 28% of its GDP, significantly below the U.S which stands at 60% and rising and many of the euro zone countries; Italy came in at 118%.
The current volatility in the currency markets since US’s ratings downgrade and other central banks intervention in their currencies has also put pressure on the Swiss Franc.
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The SNB needs to ensure that its economy continues to grow and support its exporters. The central bank is due to meet today and announce temporary measures to stop the surge.
Historically the Swiss franc has operated efficiently however on March 12th, 2009, Switzerland central bank had to intervene to maintain stability in its exchange rate and was heavily selling the Swiss franc. This was a first since around 1996; Switzerland was actively intervening in the currency markets, buying Euro bonds and reducing interest rates.
The question of reserve currency is again in the limelight on the back of US’s ratings dilemma, Gold continues to surge. With the central banks of Japan and Switzerland already creating a shake up all eyes are on the Euro.