Fall in US and European Equities Markets Boost Swiss Franc

Both U.S. and European equities markets have taken a fall with the news of disappointing durable goods and weak new homes sales still fresh in trader’s minds. The European Dow Jones Stoxx 600 Index fell 0.8 percent to 386.38, the Euro Stoxx, decreased 0.8 percent, and both the U.S. Dow Jones Industrial and S&P 500 fell 0.4 percent.  

The fall in U.S. and European equity markets have pushed forex traders to buy Swiss francs. The franc has gained on the euro for the fourth straight day. Against the euro, the franc is up 0.2% to 1.649, the strongest since June 8^th. Diminishing confidence in the U.S. and European equities have sent investors are looking for security. As in the past, as general risk aversion increases, the Swiss franc gains in value as well as more investors are looking for a low risk investment. With a weakening of the European market, long euro positions have been liquidating and flooding the market for Swiss francs.

Other factors that have contributed to the rise in demand for Swiss francs include news of increasing borrowing rates by the Swiss National Bank. This increase in turn makes a currency more attractive in value as room for arbitrage is created against another currency with a relatively lower borrowing rate. The European Central Bank has also indicated a desire to further increase interest rates to combat inflation which will likely hurt their already weak equities market.