Over the past 15 years, the Swiss franc has increased in value substantially against both the US dollar and the euro. In recent years, factors such as the European debt crisis and accommodative monetary policy from the US Federal Reserve have boosted the franc.

Currencies trade in pairs, so they are strong or weak in relation to another currency. The European debt crisis caused investors to seek safe haven in the Swiss franc and loose monetary policy diminished the appeal of the US dollar. 

The dramatic surge in the Swiss franc in 2015 was due primarily to one key event early in the year. On January 15, the Swiss National Bank (SNB) unexpectedly removed the peg of 1.20 francs per euro. In the initial reaction to the news, the Swiss franc rallied a massive 30% versus the euro and 25% against the US dollar. The move caused major upheaval in the markets and even forced some foreign exchange brokers out of business.

The SNB peg was initially set in 2011 after the eurozone crisis caused investors to flock to the Swiss franc in search of a safe haven. The franc is widely viewed as a financial refuge due to the stability of the Swiss government and financial system. The buying interest at the time caused the franc to soar and in turn hurt the Swiss economy by making exports less competitive.

However, several important factors had changed in the economic landscape since 2011 that likely contributed to the change in SNB policy. Economic strength in the US and expectations that the Federal Reserve may be ready to hike interest rates in 2015 caused the euro and the Swiss franc to weaken substantially against the US dollar. The expectations of quantitative easing (QE) from the European Central Bank (ECB), which did in fact come to pass, also played an important role.

The QE program from the ECB was expected to weaken the value of the euro, which may have required the SNB to print even more francs to maintain the cap. In order to keep EUR/CHF from falling below 1.20, the SNB created francs and used them to buy euros. The continued printing of francs led to some concern over hyperinflation among the Swiss populace and added pressure on the SNB to take action to remove the peg. 

Looking at the EUR/CHF daily chart we can see that after the sharp fall on January 15th, the franc recovered about 50% before finding major resistance at that level.

The Bottom Line

Despite removing the three-year old peg in January, the Swiss National Bank has stated that it is prepared to intervene again in the foreign exchange market if necessary, citing concerns that the currency is still significantly overvalued. Nonetheless, the Swiss franc remains a safe haven for many investors.