What happened to the Swiss franc?

[Lite Beer]

What happened to the Swiss franc?
KEN SWEET, AP Business Writer

NEW YORK (AP) — One of the world's safest investments — the Swiss franc — has swung wildly this week after the central bank in Switzerland announced it would scrap its policy of limiting the rise of the currency.

It may seem like an arcane move, but it's not. The Swiss National Bank's surprise decision on Thursday caused the franc to surge against the euro and dollar, sending shockwaves through the global financial system.

Holders of Swiss francs profited handsomely, but many investors and brokerage firms, were pounded with losses. Two brokerage firms in London and New Zealand have announced huge losses and will have to close. A New York-based currency broker said clients suffered significant losses, and it needed an emergency loan to stay in business.

The turmoil is all the more unsettling because, like U.S. bonds, the dollar and gold, the Swiss franc has been viewed as a haven for investors, thanks to the stability and wealth of the Swiss government.

Here's what happened to the franc and why it matters:

How did we get here?

Since 2011, the Swiss National Bank has had a program to keep its franc from appreciating too much against other currencies — most importantly the euro.

The franc's rapid rise makes goods and products produced in Switzerland more expensive and less competitive in other countries. The bank set a limit of 1.20 francs to the euro to keep its rise in check.

So what happened next?

After several years, it became untenable for the SNB to keep up its program. The euro is continuing to weaken against other currencies, notably the dollar, and the European Central Bank is likely to start stimulus programs that would weaken the European currency even further.

The SNB decided to allow the market to re-price the franc Thursday. This caused a massive re-pricing of the currency that led to the franc to gain more than 20 percent against the euro.

Reserve currencies do not move like this, so a 20 percent move in the franc was considered historic, investors said.

How did the Swiss bank's move hurt banks and traders?

Because currencies don't usually move much in a single day, traders often use significant leverage to boost their returns. Leverage of 50:1 is not unheard of in the currency market.

Because the franc is heavily traded, the SNB's decision reverberated throughout other currency markets and caused abnormal moves. This left traders exposed to massive losses. Anyone who had bet against the franc, even just a little bit, was hit.

Where the losses likely happened were in euro. Here's an example: A trader invested $100,000 in euros and borrowed 19 times that amount as leverage, or $1.9 million, for a total investment of $2 million in euros. The 5 percent decline of the euro against the dollar Thursday would have created a $5,000 loss for the investor's money and a $95,000 loss in the leveraged money. The investor would have lost everything.

Reports also emerged that the SNB's move inflicted large losses on the some of the world's biggest banks. The Wall Street Journal reported Citigroup and Deutsche Bank had lost more than $150 million in the turmoil following the bank's decision.

Mark Costiglio, a spokesman for Citi declined to comment on the report, as did Deutsche Bank spokeswoman Renee Calabro.

Why are some brokerages folding?

When investors borrow money as leverage, that leveraged money has to come from somewhere. In this case, it came from the brokers where these clients had accounts. Any losses that exceed a client's balance would have left brokerage firms exposed.

New York-firm FXCM said Thursday that the movement of the Swiss franc generated "negative equity balances" of $225 million, meaning its clients owed the firm $225 million. It is likely that FXCM will have difficulty getting back most of that money. FXCM had to get an emergency $300 million investment from Leucadia National to stay in business.

Other brokers said similar things. New Zealand brokerage firm Excel Markets said, "when a client cannot cover their losses it is passed onto us," which left Excel without the capital they needed to operate.

Does it matter to stocks and bonds?

Swiss stocks were hit hard by the currency moves. When a country's currency gains in value, it makes goods made in that country more expensive on the global market. Swiss manufacturers now have products that are 15 to 20 percent more expensive than they were three days ago — making it more difficult for Swiss companies to compete.

-- (c) Associated Press 2015-01-17

[cooked]

This means that Swiss nationals here in Thailand receiving pensions from Switzerland have 20% more income overnight. Welcome news indeed for me.

[KittenKong]

Always gratifying to see traders and brokers getting shafted and losing their shirts, jobs and future. All margin trading trading of stocks and currencies should be banned globally, and all short-term trading should be taxed at 200%. Then we might get back a little bit of sense in markets.

[Swiss1960]

Even from a Swiss (dummy) perspective, this move was to be expected, but of course, the timing obviously surprised the whole market community...

but when you look at the foreign currency accounts of the SNB in the last months (going up by +20 Billion in Euro and Dollar each month), when you look at the CHF/EUR exchange rate over the last weeks (scrapping around 1.20nn) and when you read that the ECB will start to print massive money starting as early as next week in order to buy government bonds, then it was pretty clear the the exchange limit to the Euro was not anymore sustainable for the SNB.

Bad news for Swiss export and Swiss Tourism and the expectation by some major banks (i.e. UBS) is that growth in 2015 will drop from 1.8% expectation to 0.5% expectation... Good news for all shopping tourists to Germany, for all Swiss travelers and most of the Swiss expat community who receives salary and / or pensions in Swiss Franc...

The future will show what will happen within Switzerland... since I can not read tea leaves, I will not make any comments about the future...

[Swiss1960]

This means that Swiss nationals here in Thailand receiving pensions from Switzerland have 20% more income overnight. Welcome news indeed for me.

and the same is true for me, since I am about to move over for early retirement in few months and my cash funds and the pension money just boosted by that 20% and give me few million Baht for a nicer living place and a even more comfortable life...

[Langsuan Man]

This means that Swiss nationals here in Thailand receiving pensions from Switzerland have 20% more income overnight. Welcome news indeed for me.

and the same is true for me, since I am about to move over for early retirement in few months and my cash funds and the pension money just boosted by that 20% and give me few million Baht for a nicer living place and a even more comfortable life...

Whatever goes up, eventually goes down, so don't spend that 20% foolishly

[Swiss1960]

This means that Swiss nationals here in Thailand receiving pensions from Switzerland have 20% more income overnight. Welcome news indeed for me.

and the same is true for me, since I am about to move over for early retirement in few months and my cash funds and the pension money just boosted by that 20% and give me few million Baht for a nicer living place and a even more comfortable life...

Whatever goes up, eventually goes down, so don't spend that 20% foolishly

I am Swiss, we normally do not spend foolishly... for me, it means that my Swiss asset will give me 20% more Baht... that means with the same living expense budget (which I will not change), I will not be bankrupt at the age of 100 but only at the age of 105...

[KhunMoo]

DKK is next, within a few years - You all heard it here first

[Pib]

DKK is next, within a few years - You all heard it here first

No, I've already heard that numerous times over the last few years. I'm just wondering how many years it takes before a "few" is finally reached.

[ExpatJ]

I know we have a few Forex traders here in thaivisa- anyone get burnt?

[whaleboneman]

Leveraged currency traders-are they investors or gamblers?

[chaiyapoon]

The Japanese guy across the street from me spends most of the day staring at 3 screens he has set up permanently.Hes at it till early in the morning hardly ever is seen out of the house though must go sometimes.What kind of life is that? Binary and forex I believe.Not for me.

[sanuk711]

If the Swiss could not afford to hold the manipulation of their currency---How does Thailand do it---------- Sap-Son --สับสน

[Anthony5]

What happened to the Swiss Franc?

Well, it bankrupted at least 2 major FX services within 24 hours.

http://finance.yahoo.com/news/swiss-franc-shock-shuts-fx-005319992.html;_ylt=AwrSyCPe0blU8EwAMIiTmYlQ

[berybert]

I know we have a few Forex traders here in thaivisa- anyone get burnt?

No they all made fortunes.

[ggt]

Owning fiat currency...paper money...is necessary but risky business...precious metals have withstood the test of time...are still an excellent value...

[Diplomatico]

If the Swiss could not afford to hold the manipulation of their currency---How does Thailand do it---------- Sap-Son --สับสน

Thailand didn't....see "Thai baht collapse of 1997".

[Oceanbat]

Always gratifying to see traders and brokers getting shafted and losing their shirts, jobs and future. All margin trading trading of stocks and currencies should be banned globally, and all short-term trading should be taxed at 200%. Then we might get back a little bit of sense in markets.

Who is going to take the other side when you want to do something?

OB

[ExpatJ]

I know we have a few Forex traders here in thaivisa- anyone get burnt?

No they all made fortunes.

They are being awfully quiet all of a sudden anyway.

I don't get the reluctance to talk about loss making investments here - plenty of people love posting about their winning investments only me and one or two others post about losing investments. It's a pity because it's a learning experience either way

[SOTIRIOS]

This means that Swiss nationals here in Thailand receiving pensions from Switzerland have 20% more income overnight. Welcome news indeed for me.

....great....spread it around.....when and where's the party......???

[Robert24]

DKK is next, within a few years - You all heard it here first

Denmark usually follows the monetary policy of the ECB very closely, so I think this is a little bit wishful thinking. Personally I think the DKK will get weaker along the Euro.

[Time Traveller]

This means that Swiss nationals here in Thailand receiving pensions from Switzerland have 20% more income overnight. Welcome news indeed for me.

and the same is true for me, since I am about to move over for early retirement in few months and my cash funds and the pension money just boosted by that 20% and give me few million Baht for a nicer living place and a even more comfortable life...

Whatever goes up, eventually goes down, so don't spend that 20% foolishly

I am Swiss, we normally do not spend foolishly... for me, it means that my Swiss asset will give me 20% more Baht... that means with the same living expense budget (which I will not change), I will not be bankrupt at the age of 100 but only at the age of 105...

hope you have cash becuase if you owned stocks your investments actually lost becuase of the currency appreciation.

[Anthony5]

DKK is next, within a few years - You all heard it here first

Denmark usually follows the monetary policy of the ECB very closely, so I think this is a little bit wishful thinking. Personally I think the DKK will get weaker along the Euro.

Isn't that the reason that the Swiss detached their currency from the Euro, because it was dragging their currency down as well, and the Swiss have no benefits from a low valued currency.

I'm not sure about the Danes, but if they don't benefit from a low valued currency, they will detach theirs as well.

[sotsira]

The price of fine Swiss watches will become even higher overnight for overseas dealers.

[Swiss1960]

and the same is true for me, since I am about to move over for early retirement in few months and my cash funds and the pension money just boosted by that 20% and give me few million Baht for a nicer living place and a even more comfortable life...

Whatever goes up, eventually goes down, so don't spend that 20% foolishly

I am Swiss, we normally do not spend foolishly... for me, it means that my Swiss asset will give me 20% more Baht... that means with the same living expense budget (which I will not change), I will not be bankrupt at the age of 100 but only at the age of 105...

hope you have cash becuase if you owned stocks your investments actually lost becuase of the currency appreciation.

cash only.. started to get out of the stock crap some years ago and have only assets in cash now... they might not have paid that much (last 2 years 6%/y) but 100% safe

[Swiss1960]

DKK is next, within a few years - You all heard it here first

Denmark usually follows the monetary policy of the ECB very closely, so I think this is a little bit wishful thinking. Personally I think the DKK will get weaker along the Euro.

Isn't that the reason that the Swiss detached their currency from the Euro, because it was dragging their currency down as well, and the Swiss have no benefits from a low valued currency.

that is BS... the Swiss National Bank did introduce the currency limit, because our heavily export related economy could not stand the 1:1 conversion to Euro and US$ 3y ago... that is why it got linke to the Euro... and the tourism industry is the same, we will lose loads of tourists from EUR countries within the next months to come...

Right now, there are rumours and outlooks of

- growth slowing from 1.8% to 0.5%

- unemployment going up from 3.5% to 6%

- and a lot more of those scenarios to come soon.

The only REALLY happy people are importers, tourists (shopping to Germany / France / Italy / Austria and travel) and expats in certain countries (i.e. Thailand).

[elgordo38]

Central Bankers are all interconnected world wide. Do you really think that they work in the best interests of the common fellow like you and I? Hardly. They serve the same masters big business. I can remember having a job with a future a pension benefits good vacations decent pay I was truly happy its all gone now. You are a contract employee now no security no benefits nothing your on call when they need you. Computer programers now produce programs to show when peak hours are. Otherwise go home. Yes employment is going up in the USA but wages are dropping. Quality of new jobs are dropping their not good jobs but hamburger flipper jobs. Many people have given up looking or have exhausted their benefits so they fall off the charts thus it looks like unemployment is dropping its all a numbers game like the old shell game of years gone by. In the end its all numbers and like the new cost of living numbers well all know they can be manipulated(they have been changed numerous times over the last few decades. Each time something has been deleted to lower the numbers) to suit the government which in turn gives us a pittance of a pension increase to save themselves money. Their business flunkies can now borrow our money at a cheap almost zero rate and buy back stock or their competition. This is driving the present stock market to new highs. They are all carpetbaggers of the worst kind.

[Swiss1960]

The price of fine Swiss watches will become even higher overnight for overseas dealers.

yep... Nick Hayek, Head of the Swatch Group (Breguet, Harry Winston, Blancpain, Glashütte Original, Jaquet Droz, Léon Hatot, Omega,Longines, Rado, Union Glashütte, Tissot, Balmain, Certina, Mido, Hamilton, Calvin Klein watches + jewelry, Swatch, Flik Flak.) was quoted "I am missing words to describe how I feel... the Swiss National Bank just caused a "Tsunami" for our economy...

[impulse]

Nick Hayek, Head of the Swatch Group (Breguet, Harry Winston, Blancpain, Glashütte Original, Jaquet Droz, Léon Hatot, Omega,Longines, Rado, Union Glashütte, Tissot, Balmain, Certina, Mido, Hamilton, Calvin Klein watches + jewelry, Swatch, Flik Flak.) was quoted "I am missing words to describe how I feel... the Swiss National Bank just caused a "Tsunami" for our economy...

More like: "the Swiss National Bank just quit spending tons of cash to keep the inevitable tsunami at bay for another day..week..month..year." (Pick your favorite pundit's crystal ball)

(And they didn't give us enough warning to short every Swiss stock out there, the rat bastards...)

Edited January 17, 2015 by impulse

[IAMHERE]

Leveraged currency traders-are they investors or gamblers?

If you made money then you were an investor, if you lost money then you were a gambler.