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The Swiss capitulate




This morning the Swiss central bank announced that it will no longer tolerate a continued strengthening of the franc vis a vis the euro, placing a floor of 1.20 on the euro-franc exchange rate. The chart above shows the history of this rate, with the euro now having lost almost 30% of its value against the franc since late 2007.


This next chart shows the value of the dollar vis a vis the yen, with the dollar having lost about 40% of its value against the yen since 2007. Like the Swiss franc, the yen has appreciated so much in recent years that it is probably running out of room on the upside. Commodity currencies like the Canadian dollar and the Aussie dollar have also enjoyed tremendous appreciation, but further upside seems limited. That means that disaffected owners of the euro are essentially limited to the dollar if they want to opt out of the euro. Not surprisingly, the dollar has jumped 3% in the past few days, and is up over 1.5% today on the franc news. In this manner, the bad news coming out of Europe is good news for the dollar.

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