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Investors parking their money in Swiss franc – Does it look expensive for a correction?

A steep rise in the value of the Swiss franc indicates bad news for the entire Swiss economy but it also offers a wide array of intriguing possibilities for the investors. The Swiss franc is always considered as a safe haven by the investors and during a time when the Euro Zone is wrestling with a brewing debt disaster and when parts of Middle East are in financial turmoil, most investors are looking for parking their cash in low-risk locales and Switzerland proves to be one of the most favorite destination for them. Investing has always been a favorite way of boosting income resources and paying off high interest debt through debt reduction companies.

Since the start of the year 2011, the lure of the Swiss franc has pushed up its value by 25% against the Euro and 15% against the USD or the dollar. As the Swiss franc is adjusted in all ways to combat inflation, it is trading at its highest level since the last 30 years. According to a senior currency strategist, the value of franc has gone beyond what anyone could normally expect and he has also expresses his fears about the Swiss economy in the coming year.

The cabinet in Switzerland has discussed the strong franc and the impact it may have on the economy and has said that this is nothing but the currency is going through an "overvalued phase". The government of Switzerland has predicted that the GDP or the gross domestic product will increase by 2.3%in the year 2011, after trimming down its 2012 forecast in the month of June to 1.5% from 1.9%.

Specifically, there is a difference between the appreciation of an exchange rate and the effect it may have on the economy. However, there are already signs of a massive slowdown in the export sector in Switzerland and there is pressure being built on the corporate profit margins. SMI equity index, Zurich's benchmark, has lost more than 4% in value since the initial part of 2011. In contrast, Germany’s blue-chip DAX rose more than 9%.

There have been constant efforts by the central bank of Switzerland to curb the unnatural growth of the Swiss franc but all efforts have been ineffective. According to experts, the strength of the franc is pretty justified for the short-term but it may become questionable if it continues in the long run. Reports and studies suggest that if the Euro zone financial problems intensify, the frank is most likely to remain strong against the Euro. However, the value of the franc could soon depreciate if the ECB (European Central Bank) soon finds out a solution to the financial worries of Greece. Though this seems unlikely for the moment, yet there are chances in the near future.

As per Global strategist Hudson, the Swiss franc could only get some relief against the dollar if the US Congress reaches a strong deal with their budget before the 2nd of August and before the raising of the government debt ceiling. While some investment experts suggest investors to invest in Swiss francs to earn positive yields, there are some others who advise investors to invest in Asian currencies, especially the Singapore dollar as it can be a good trade over the long run.

Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like 'Credit Score The Quintessential Therapy for a Happy Pocket', Take Creditors and Collection Agencies to Small Claims Court' and, My Story- From Depression To a Smile'.

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Modified:06/03/2014
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