EUR/CHF exchange rate broke the CHF 1.2 threshold; the lowest level since the release of the Franc by the SNB

The magic barrier

Early on Thursday, the Euro temporarily reach the point of CHF 1.20025. then it went back to the zone of CHF 1.99. It is worth to notice though, that in the beginning of the year the EUR/CHF exchange rate was well under CHF 1.15. It means to buy euros one needed much higher number of Swiss Francs than previously, which in short means the Swiss Franc is the weaker currency at this moment. The threshold of CHF 1.2 in the exchange rate pair of EUR and CHF is considered a magic barrier, sort of. It was the minimum rate defended by Swiss National Bank all the way until the January 2015, when in an infamous move the SNB dropped its policy causing chaos on currencies market and surge of Swiss Franc’s rates. Weaker Swiss Franc is very much desired by tourism and export industries, so that goods can be eagerly and more competitively sold abroad, and tourists have more spending power while staying in Switzerland.

Will SNB respond?

Before 2015, the SNB has pumped hundreds of francs to defend its threshold of CHF 1.2, mainly through buying assets denominated in foreign currencies. The interest rates were reduced to negative target of minus 0.75. As the effect, the Swiss Franc’s attractiveness as one of the main safe haven currencies for investors has faded. With weaker exchange rate against the Euro, one should not expect though some quick and sharp actions from the SNB. The chances the central bank will change its monetary policy anytime soon are small. The Swiss Central Bank’ chairman Thomas Jordan stated on Thursday to Bloomberg that he is in no hurry to adjust the monetary policy of the country, including alternation of negative interest rates. According to Jordan, the global economy’s situation is still delicate, and the Swiss Franc still maintains its status as the safe haven currency, regardless of the exchange rate’s variations. Even though abandoning the defense of the CHF 1.2 barrier resulted in some negative effects, like inflating prices of property and reducing the return obtained from some of traditional financial instruments, the SNB has also a point when it come to refusing to normalize the interest rates. As side-effect of alteration, the Swiss Franc could strengthen again. As of now, the SNB sticks to its opinion that Swiss Francs is highly valued, and markets are volatile – too much to alter the negative interest rate and intervene in the foreign exchange market. The expectations of investors and analysts are that the rates won’t be changed this year at all, as Italian elections are around the corner and a spectrum of trade war between the US and various countries, lingers in the air.

Record low PLN against the CHF

The exchange rate of CHF/PLN came back to a level recorded before the Black Thursday from December 2014. The rate reached 3.5 zlotys. Below that level it was last time just before Christmas of 2014. At some point at the end of 2014 and in the beginning of 2015 the exchange rate of CHF/PLN was above 5 zlotys. It came as shock to may Poles who have mortgages denominated in Swiss Francs. But since the end of last year, the Polish Zloty has been getting stronger and in last month itself it went up by 2.6 percent against the Swiss Franc. One of the reasons behind it, was the Standard & Poor’s change of perspective from neutral to positive when it comes to rating of Poland. Soon a change of Poland’s rating itself might be on the cards. What is also helping the Polish Zloty is not so good exchange rate of EUR/CHF. Stronger Euro usually conveys to stronger Polish Zloty. Still, the Swiss Franc is overrated against the Polish Zloty – according to the SNB by 3.2 percent. Also, for the first time since 2016, there can be observed a raise in demand for Polish Zlotys.