The EURCHF Currency Pair
The cross currency pairing of the euro (EUR) to the Swiss franc (CHF) is popular among international forex market participants. A “cross currency pairing,” or “cross pair,” is a foreign currency exchange that takes place without first converting the base currency into United States dollars (USD). According to the International Bank of Settlements, EUR/CHF is the third-most frequently traded cross pair on the forex, showing an average daily volume valued at US$44 billion. In total, it’s the 25th most commonly traded pair on the forex, comprising .9% of aggregate daily volume.1)Retrieved 26 October 2016 http://www.bis.org/publ/rpfx16fx.pdf
Active trade of EUR/CHF affords market participants a few distinct advantages:
- First, directly exchanging euros for Swiss francs isolates currency traders from volatilities associated with the USD.
- Also, the EUR/CHF can serve as a portfolio hedging tool against fluctuations in other international currencies. Some traders think that the euro and CHF have traditionally exhibited a strong correlation to one another. Some analysts suggest that for the years 2010-2015 the correlation between the euro and CHF was 91%.2)Retrieved 26 October 2016 https://www.researchgate.net/publication/299416984_Searching_for_Inefficiencies_in_Exchange_Rate_Dynamics
Sometimes labelled a “safe haven” currency, the Swiss franc has often been a destination for investors seeking to mitigate global economic risk. Evidence of the currency acting as a safe haven occurred in the years following the 2008 global debt crisis. From January 2009 to January 2011, the exchange rate of EUR/CHF fell from a high of 1.5447 to a low of 1.2400. This move represented nearly a 20% depreciation of euros to francs, mostly because of the widespread buying of francs in response to global economic uncertainty.
In September 2011, the Swiss National Bank (SNB) elected to peg the CHF’s exchange rate to the euro, implementing a “cap” of 1.20 CHF to the euro. The SNB’s policy brought about tight trading ranges for the pair from September 2011 to December 2014, extremes being a high of 1.2649 and a low of 1.9935. However, on January 15, 2015, the bank announced a surprise decision to abandon the peg to the euro. Extreme volatility ensued, resulting in a rapid 30% appreciation of the Swiss franc to the euro.3)Retrieved 26 October 2016 http://www.cnbc.com/2015/01/15/swiss-franc-sours-stocks-tank-as-euro-peg-scrapped.html
The CHF is considered to be a free-floating currency, deriving its value from the open market. Since the removal of the peg by the SNB, EUR/CHF has shown long-term stability, trading from a bottom of near-par to a top of 1.1199.
Key Facts: EUR/CHF
- Currency overview: The euro is the official currency of the European Union. It has the largest circulation among currencies in the region and serves alongside the U.S. dollar and the Japanese yen as a major world reserve currency.
- Central bank: European Central Bank
- Currency code: EUR
- History: The euro was introduced in 1999 as the official currency of the eurozone, replacing the traditional currencies of 19 nations in the region.
- Economy: The eurozone economy is the largest economy of a supra-national economic bloc in the world, with a GDP of approximately €15 trillion.
- Currency subunits: 1 cent = 1/100 of a euro
- Denominations: Bills: €5, €10, €20, €50, €100, €200, €500; Coins: 1c, 2c, 5c, 10c, 20c, 50c, €1, €2.
- Countries and territories using the euro: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Also, Andorra, Monaco, San Marino and the Vatican use the currency under an agreement with the European Union. Two other countries, Kosovo and Montenegro, have adopted the currency unilaterally without an agreement.
- Currencies pegged to the Euro: Benin franc, Bosnia and Herzegovina mark, Bulgaria lev, Burkina Faso franc, Cameroon franc, Central African Republic franc, Chad franc, Denmark krone, Equatorial Guinea franc, Gabon franc, Guinea-Bissau franc, Ivory Coast franc, Mali franc, Niger franc, Republic of the Congo franc, Senegal franc and Togo franc.4)Retrieved 21 March 2016 https://www.ecb.europa.eu/home/html/index.en.html
Swiss Franc (CHF)
- Currency overview: Commonly referred to as the “swissie,” the Swiss franc is the seventh-most frequently traded global currency, representing 4.9% of aggregate daily turnover.5)Retrieved 25 October 2016 http://www.bis.org/publ/rpfx16fx.pdf The Swiss franc is considered to be one of the world’s “major” currencies, and has served as a safe haven for investors during times of economic instability. Monetary policy aimed at aggressively combating inflation while keeping national debt levels low have made the Swiss franc a highly regarded currency.
- Central bank: Swiss National Bank (SNB)
- Currency code: CHF
- History: Switzerland has a long, complex history of periodic revolution and subsequent eras of stability. One of the most important events was the formation of the Helvetic Republic (1798) influenced by Napoleonic France.6)Retrieved 25 October 2016 http://history-switzerland.geschichte-schweiz.ch/swiss-revolution-helvetic-republic-1798.html The Helvetic republic was the first step towards the current governmental structure and first attempt to standardize currency in Switzerland. During the early 1800s, nearly 8,000 different types of coins were in circulation.7)Retrieved 25 October 2016 http://www.sunflower.ch/pdf/yesterday/05_Modern_Times/04(03)%20Coins%20of%20the%20Helvetic%20Republic.pdf It was not until the creation of the Swiss Federal Constitution in 1848 that currency was consolidated into the Swiss franc. In 1865, Switzerland joined the Latin Monetary Union, which permitted the trade of gold and silver coins throughout France, Belgium and Italy. This lasted until 1926, when the Swiss franc became the exclusive currency of Switzerland.8)Retrieved 25 October 2016 http://www.swissmint.ch/e/dokumentation/muenzkunde/
- Economy: Switzerland has the 40th largest economy in terms of GDP purchasing power parity (PPP). The service sector of the Swiss economy represents 73.6% of GDP, led by the financial services industry.9)Retrieved 25 October 2016 https://www.cia.gov/library/publications/the-world-factbook/geos/sz.html Switzerland ranks 16th in GDP per capita, and boasts 3% unemployment, which ranks 25th globally.10)Retrieved 25 October 2016 https://www.cia.gov/library/publications/the-world-factbook/geos/sz.html Low national debt levels in addition to robust trade partnerships with the countries of the EU and United States have ensured economic stability in Switzerland.
- Currency subunits: 1/100 of one franc, commonly referred to as: rappen (German), centime (French), centesimo (Italian) and rap (Romansh, official language of Switzerland).
- Denominations: Bills: CHF10, CHF20, CHF50, CHF100, CHF200, CHF1000; Coins: 5, 10, 20 rappen, and CHF1/2, CHF1, CHF2, CHF5.
- Countries and territories using the Swiss Franc: Switzerland, Liechtenstein and Campione d’Italia
- Currencies pegged to the Swiss franc: Although one of the world’s strongest and most influential currencies, the Swiss franc is not used as a peg by any foreign countries.
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References [ + ]
|1.||↑||Retrieved 26 October 2016 http://www.bis.org/publ/rpfx16fx.pdf|
|2.||↑||Retrieved 26 October 2016 https://www.researchgate.net/publication/299416984_Searching_for_Inefficiencies_in_Exchange_Rate_Dynamics|
|3.||↑||Retrieved 26 October 2016 http://www.cnbc.com/2015/01/15/swiss-franc-sours-stocks-tank-as-euro-peg-scrapped.html|
|4.||↑||Retrieved 21 March 2016 https://www.ecb.europa.eu/home/html/index.en.html|
|5.||↑||Retrieved 25 October 2016 http://www.bis.org/publ/rpfx16fx.pdf|
|6.||↑||Retrieved 25 October 2016 http://history-switzerland.geschichte-schweiz.ch/swiss-revolution-helvetic-republic-1798.html|
|7.||↑||Retrieved 25 October 2016 http://www.sunflower.ch/pdf/yesterday/05_Modern_Times/04(03)%20Coins%20of%20the%20Helvetic%20Republic.pdf|
|8.||↑||Retrieved 25 October 2016 http://www.swissmint.ch/e/dokumentation/muenzkunde/|
|9, 10.||↑||Retrieved 25 October 2016 https://www.cia.gov/library/publications/the-world-factbook/geos/sz.html|