The Swiss franc has long been regarded as a safe-haven currency, a characteristic that became particularly evident during the financial crisis when it experienced significant appreciation against various currencies. This appreciation was especially pronounced against the euro, prompting the Swiss National Bank (SNB) to take decisive action. In September 2011, the SNB established a floor for the EUR/CHF exchange rate at 1.20, committing to defend this level with unlimited purchases of foreign currency assets. This policy led to a substantial expansion of the SNB’s balance sheet, which eventually became unsustainable.
In a surprise move on January 15, 2015, the SNB announced the abandonment of the exchange rate floor. This decision sent shockwaves through the markets, causing the EUR/CHF exchange rate to plummet to around 1 euro. In response, the SNB implemented negative interest rates, which initially led to a weakening of the franc, briefly reaching almost 1.20 Swiss francs per euro in May 2018. However, the franc’s appreciation trend resumed thereafter. The parity between the Swiss franc and the euro was finally broken in mid-2022, partly due to Switzerland’s less severe Covid lockdowns, which facilitated a relatively faster economic recovery.
Alt: Close-up of Swiss Franc and Euro banknotes, showcasing currency exchange between Switzerland and Europe
However, since the beginning of this year, there appears to be a shift in this trend. The Swiss franc has been experiencing increased pressure, influenced by factors beyond the SNB’s early move to cut interest rates among major central banks. Parity with the euro is once again within reach, especially as the SNB is expected to continue lowering interest rates. This recent weakening indicates that the Swiss currency is on track for its weakest quarter against the euro since 2003. Among the G10 currencies, only the Japanese yen has shown a weaker performance against the euro than the franc since the start of the year. This raises the question: Is this a sign of a new trend in the Swiss Currency Euro exchange rate dynamics?
