A Tale of Two Currencies

There’s an island of sorts on the European continent that said “no thanks” to being part of the European Union – and thus does not use the euro as a currency.

I’m talking about the Swiss franc (known by the currency symbol CHF), and it’s interesting to see how it’s been trading relative to the euro.

Even though Switzerland doesn’t participate in the Eurozone, its economy is obviously linked to the rest of the continent, and so fluctuations between the currencies could be disruptive.

That’s why I thought I would take a look at the relative performance of both the euro and Swiss franc over the past several months.

This chart shows the euro (in blue) and the Swiss franc (in red) against the US dollar. The bottom chart (purple line) shows the relative performance between the two. The purple line essentially represents your performance if you were long the Swiss Franc and short the euro.

From December 1 to March 1, the euro fell by 10.1% against the US dollar, while the Swiss franc fared better, falling only 7.4% against the dollar.

I have no idea whether or not the Swiss are actively intervening in the currency markets or not, but it looks to me as if the Swiss franc was “allowed” to appreciate against the euro from December until mid-March, but only to a certain extent.

Then, in April, even as both currencies were still falling against the dollar, the Swiss franc stepped up again against the euro.

And, after some volatility in late May, the Swiss franc is gaining even further ground against the euro.

Will this strength continue? And what will happen to the Swiss franc if the euro reverses course? It will be interesting to compare these currencies in the weeks and months ahead.