Parity with the euro: Why is the Swiss franc so strong at the moment?
The Swiss franc has strengthened rapidly as capital flows into the country from Ukraine, Russia and the rest of the world, amidst growing financial uncertainty triggered by the war in Eastern Europe.
Swiss National Bank prepared to act if franc value increases
The Swiss central bank has confirmed its willingness to intervene if the Swiss franc continues to increase in value. One of the main reasons for the latest surge in value is the Swiss franc's popularity as a "refuge currency," alongside the US dollar and the Japanese Yen. Refuge currencies - also known as safe havens - are markets with the least amount of volatility, either through the size of the economy backing the currency or the stability of the nation involved.
In the last few days, finance experts in Switzerland have grown increasingly concerned about the franc, especially after it was pushed above parity with the euro on Sunday - the first time it has done so since 2015. Increasing oil prices have also increased investors' scepticism over the past week, again putting pressure on the franc as financiers look to move their money to Swiss banks for greater financial security.
Why is a strong Swiss franc bad?
While a strong Swiss franc is good for some, many people will feel the pinch if the currency’s value continues to appreciate. Stronger currencies make imports relatively cheap, allowing people across the country to buy products from international companies for a cheaper price.
On the other hand, exported Swiss products are much more expensive for the countries that wish to buy them, meaning that Swiss businesses could be heavily impacted by a surge in the franc's value. Especially in Switzerland’s export-heavy economy, the country could find its key industries such as machinery, watches and medical products struggling for business if the currency rise continues. In addition, expats with jobs in Switzerland with salaries in foreign currency, or pensioners and people with savings based overseas will see the cost of living rise as assets and currencies abroad become less valuable.