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Parity with the euro: Why the Swiss franc is now so strong

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Parity with the euro: Why the Swiss franc is now so strong
A pile of Swiss franc notes seen up nice and close. Image: Pixabay

On Sunday evening, the Swiss franc reached parity with the euro. International turmoil and Switzerland’s position as a ‘safe harbour’ are the main reasons for the franc’s surging value.

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It was the first time in seven years the Swiss franc and the euro had hit parity. 

When trading opened on Monday morning, the franc fell slightly against the euro and is currently trading at 1.0012 Swiss francs. 

International turmoil - and in particular Russia’s invasion of Ukraine - is the major reason for the change, with investors increasingly valuing the security that Switzerland offers. 

Switzerland’s Neue Zürcher Zeitung broadsheet writes that the alpine nation is viewed as having “enormous credibility” abroad, while the low national debt and the current account surplus are also contributory factors in the strength of the franc. 

READ MORE: How to protect your savings against inflation in Switzerland

The decline in the value of the euro is another major factor, with the European currency falling by four percent since Russia invaded Ukraine. 

In this time the Swiss franc has risen by 0.9 percent. 

Is this a cause for concern? 

A stronger local currency may lead to increased purchasing power, it can have problematic consequences, for instance regarding exports. 

Experts are largely unconcerned however, saying the trend is less indicative of Swiss reactions to the Ukraine crisis but more connected to a decline in the value of the euro. 

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“The increase is pretty muted, indicating that the the SNB hasn’t intervened much over the past few days,” Maxime Botteron, and economist with Credit Suisse, told news outlet Swiss Info. 

“It has a lot to do with the fact that the franc’s appreciation is against the euro and not other currencies.”

The fall in the value of the euro is at least in part due to the EU’s heavy exposure to Russia’s economy. 

Economists predict that the Swiss National Bank is unlikely to take significant steps or put in place notable changes, for instance a spike in interest rates, while the franc’s position against other currencies continues to remain stable. 

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