Still wondering why the Swiss franc just keeps on raking ’em gains like there’s no tomorrow? Well, wonder no more! In this edition of Piponomics, Forex Gump’s going to give you three reasons why everybody loves the franc.
1. The Franc is Safer than a Swiss Bank Account
Before the most recent financial crisis, the franc has been considered one of the safest investments because the currency experiences very little inflation. In addition to this, Switzerland has always been considered politically neutral, which makes the franc a very good “safe-haven” currency candidate.
As we trudge along this so-called economic recovery, it seems that the franc is beginning to reprise its role as a “safe-haven”.Thanks to euro zone‘s debt problems, the franc has been rallying strongly against most major currencies and has posted spectacular gains against the euro, the dollar, and yes, even gold. Since June, the franc has gained more than 9% over the shiny metal!
2. Sexy like a Swiss Swimsuit Model
Not only does Switzerland have some of the tastiest chocolates, snazziest watches and most beautiful women in the world but, when compared to the rest of the euro zone, Switzerland economic prospects are promising. Unlike its European neighbors, Switzerland isn’t as exposed to debt contagion that has been knocking on the euro zone’s doorstep. Coupling this with the deficit issues of the UK, it’s no surprise that the franc was traders’ flavor of the month for June!
Looking at economic data, there are also signs of strength in the Swiss economy. While GDP data came in slightly disappointing by posting 0.4% growth during the first quarter of 2010, you should know that the figures for Q4 2009 were revised up to 0.9%. Meanwhile, the Swiss government expects that with exports on the rise, the economy will continue to grow by 1.4% in 2010. This was double the initial estimates of a mere 0.7% uptick!
3. Threat of Intervention? Gone for now!
If there’s one thing that used to keep traders from gobbling up the franc back then, it’s the possibility of a central bank intervention. Because the SNB is notorious for intervening in the currency markets whenever the franc rises too strongly, traders usually feel uneasy about buying up the franc.
However, just last month, SNB Chairman Philipp Hildebrand announced that the central bank would no longer resort to intervention to counter the franc’s appreciation. According to him, the Swiss economy has improved considerably recently and that their export industry could survive even without currency interventions. Aha, now there’s hardly any reason to hold back on those EURCHF and USDCHF shorts!
Unless deflation creeps its way into the Swiss economy, the SNB probably won’t have any reason to cap off the franc’s gains. Until then, the franc could continue to benefit from its safe-haven status, sexy economic figures, and SNB’s hiatus from currency intervention!