The Swiss franc has long been regarded as a safe-haven currency, a status that became particularly evident during the global financial crisis. This period saw the franc appreciate significantly against numerous currencies, most notably the euro. For the Swiss National Bank (SNB), this surge in value was concerning, especially in relation to the euro.
In response to what it deemed excessive appreciation, the SNB took decisive action on September 6, 2011. They established a floor for the EUR/CHF exchange rate at 1.20, committing to defend this level through unlimited purchases of foreign currency assets. This policy, while effective in capping the franc’s rise, led to a substantial expansion of the SNB’s balance sheet, potentially more than the central bank had anticipated.
However, this policy proved unsustainable in the long run. On January 15, 2015, the SNB surprised global markets by abruptly abandoning the exchange rate floor. The EUR/CHF exchange rate immediately plummeted, briefly reaching levels around 1 euro. Subsequently, the SNB introduced negative interest rates, which led to a temporary weakening of the franc. By May 2018, the euro briefly traded at almost 1.20 Swiss francs once again. Yet, the franc’s appreciation trend soon resumed. Parity with the euro was finally breached in mid-2022. This shift was partly attributed to Switzerland’s less severe Covid-19 lockdowns, which facilitated a relatively faster economic recovery compared to the Eurozone.
Since the beginning of this year, however, a potential trend reversal appears to be emerging in the Swiss Currency To Euro exchange rate. The Swiss franc has experienced increased pressure, and this isn’t solely due to the SNB being the first major central bank to implement interest rate cuts. Parity is once again within reach, especially as further interest rate reductions from the SNB are anticipated. This recent weakening has positioned the Swiss franc for its weakest quarter against the euro since 2003. Among the G10 currencies, only the Japanese yen has shown weaker performance against the euro since the start of the year. This raises the question: Is this weakening of the swiss currency to euro a sign of a new, lasting trend?
