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Straight Talk Money: What Happened to the Swiss Franc?

Charles Sizemore
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I joined Peggy Tuck this morning to chat about the surprise move by the Swiss National Bank to end the franc’s peg to the euro:

The move came as a complete shock to the financial markets. The franc shot up by as much as 39% against the dollar and euro before giving up some of its gains. Swiss stocks sold off in response, down about 9%, as a more expensive franc makes Switzerland’s mighty exporters less competitive and lowers the value of their exports when translated back into francs.

Interestingly, as Aron Pinson noted in MicroFundy, the value of Swiss ADRs trading in the U.S. actually rose. The higher franc more than offset the weaker share prices when translated into dollar.

So, what happens next?

My guess is that the Swiss end up having to reinstitute their peg to the euro at some point in the next couple of months. The Swiss are being punished for their virtues, and my guess is that after a few months of lobbying by Swiss multinationals, the Swiss National Bank does something pretty extraordinary to lower the value of the franc, at least relative to the euro.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

This article first appeared on Sizemore Insights as Straight Talk Money: What Happened to the Swiss Franc?

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