The Swiss franc, volatility and the price of gold.
This week’s decision by the Swiss National Bank to allow the Swiss franc to float freely has sent shock waves across the world’s markets.
A number of foreign exchange and spread-betting platforms have taken heavy hits as clients took bets on the SNB continuing to support the Euro/Swiss franc rate of 1.20.
Negative yield: The SNB also lowered Interest rates by 0.50% to negative 0.75%. This means that the cost of holding Swiss franc’s in a bank account is more than the cost of storing gold
There are a huge amount of mortgages in Eastern European countries denominated in Swiss francs, as banks and their customers stupidly only looked at the cost of servicing the debt and not how a strengthening of the Swiss franc would increase the amount to be repaid in the other currency – and in case you were wondering, you can’t hedge that position entirely without losing the interest advantage.
In Poland alone, Lenders had $35 billion worth of Swiss franc mortgages on their books.
The Swiss franc is merely a sideshow, the real story is the future of the Eurozone, and with the UK election approaching, if the Euro erupts that will impact sterling and probably also have a big impact on the election outcome.