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In various posts we have mentioned that the Swiss franc is heavily overvalued as compared to the US Dollar and the Euro. The EUR/Swiss franc exchange rate was almost 1 this week. As such an overvalued Swiss franc is extremely harmful for the export oriented Swiss economy, the Swiss National Bank, with a strong moral support from politics, started to intervene and will continue to do so. It is one scenario that the Swiss National Bank will determine a lower exchange rate limit for the Euro. A limit which would be defended with all means. Some experts say that such a limit could be increased over time. The OECD earlier this year published research saying that the Swiss franc is massively overvalued. At a time when the EUR/Swiss franc exchange rate was still substantially higher than today. Consequently, a further depreciation of the Swiss franc is likely.
The Swiss economy already suffered during the period of the extremely strong Swiss franc and is expected to cool down. In combination with the continuing strong Central Bank intervention, it is advisable to reduce Swiss franc investments.
Daily Markets is now even asking whether the US Dollar could "Get Safe Haven Flows with JPY and CHF Undermined by Their Central Banks".
However, the Swiss National Bank is not undermining the Swiss franc. It follows a policy which will eliminate an "absurd" over-valuation, caused by political insecurity in the US and the Euro Area, weakening economies and monetary expansion in the US and the Euro Area. Once the situation in the US and Europe stabilizes, the Swiss franc could rapidly depreciate. Switching Swiss franc investments into the US Dollar and the Euro is probably a good idea.
Keywords: Swiss Franc, Overvaluation of Swiss Franc
Find here an excerpt of an Aug. 11, 2011, Daily Markets article:
"Will USD Get Safe Haven Flows with JPY and CHF Undermined by Their Central Banks
For currency traders there is concern that the BOJ is ready to come back into the market and intervene for a second straight week and combining that with the talk and actions coming out of the SNB, we are seeing traders running out of alternatives in regards to where to park their money. That leaves the USD as the de facto currency and a weakening USD is not one of the concerns of monetary authorities in the US. Gold will also continue to be a favored destination for safe haven flows."
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