What's going on?

Switzerland�s currency � the franc � has been falling (meaning you can get more for your pounds or dollars), hitting a milestone against the euro at the end of last week. But the Swiss central bank (the SNB) is actually delighted: a weaker currency should help increase sluggish inflation.

What does this mean?

The Swiss franc has long been thought of as a safe haven for investors due to the country�s cuckoo clocks, chocolate and delicious cheese stable government, reliable economy and low inflation (so your francs won�t lose much value over time). But that�s not necessarily true these days. One reason offered for the recent franc-fall is Russian citizens yanking their money out of the country following recent US sanctions.

Why should I care?

The bigger picture: This is probably a good thing for Switzerland.

In 2015, the value of the franc jumped dramatically after the SNB removed a 3-year-old peg to the euro (it had previously promised to keep the value of the currency relative to the euro at a specific level, but changed its mind). This was great for investors, since the value of their investment in francs went up! But it wasn�t great for the Swiss economy, because it relies on exports to other countries � and Swiss products became more expensive as a result, so people bought less. The recent fall in the value of the currency has seen it return to near 2015 levels � something welcomed by the SNB, as they think the franc is overvalued.

 

For markets: Inflation is set to rise in Switzerland.

As a currency falls, exports become more attractive, because products are effectively cheaper to international buyers. On the other hand, imports become more expensive � which could spur inflation as the prices of goods rise to reflect the higher cost of getting them into customers� hands. In this case, the SNB would likely welcome some increase in inflation � but too high an increase could see it revise its current stance on economic policy in order to keep inflation under control.