Profiting from Swiss Threat to Peg Franc to the Euro and Impose Negative Interest Rates

Switzerland's central bank is considering further measures to keep the country's currency from appreciating any further. The Swiss National Bank (SNB) has already increased liquidity and reduced interests over the last week but has warned speculators that it considers the Swiss currency to be "massively overvalued" and that the central bank is ready to take further steps to stop the Swiss franc from moving any higher against the euro and the American dollar. Representatives of SNB went so far as to say that they would consider pegging the Swiss franc to the euro in order to halt the currency's rise. Another measure that the central bank refused to take off the table was the possibility of banks imposing negative interest rates in order to punish speculators that have been pushing the value of Switzerland's currency ever higher against the currency's of the United States and the eurozone, which would mean that banks like Credit Suisse Group CS and UBS UBS, would actually charge their depositors to hold their money. The Swiss National Bank shares the concerns of Switzerland's exporters that an overvalued Swiss franc will put a damper on the Swiss economy and lower both growth and profits. Concerns are also being voiced that it may cost the country jobs if employers like Logitech International LOGI and ABB ABB decide to shift operations overseas to take advantage of the Swiss franc's strength against other currencies. However, the bankers at the Swiss National Bank also said that there are both legal and political barriers that would need to be overcome before pegging the franc to the euro or imposing negative interest rates. Talk of pegging the Swiss franc to the euro and imposing negative interest rates on depositors are the latest of recent attempts to halt the rise of the Swiss franc. Just last week the Swiss National Bank announced that it was increasing sight deposits from 30 billion francs up to 80 billion francs, followed by another announcement earlier this week of a second increase to 120 billion Swiss francs. The central bank also said that it was lowering interest rates to nearly zero in a further attempt to put a damper on the Swiss franc's rise. Although the Swiss National Bank has said that all options are under consideration, direct market intervention could prove unpopular because the last time the bank intervened to halt the Swiss franc's rise it had little effect on the currency's value and resulted in billions of dollars in losses for the central bank. If Switzerland is able to halt or reverse the rise of the Swiss franc, the iShares MSCI Switzerland Index EWL and the Swiss companies mentioned earlier in this article should see their share prices increase. A falling franc would mean that Swiss companies' products would be better able to compete on price and should increase the company's profit margins. If the Swiss Central Bank's efforts to prevent the Swiss franc from rising any further fail, than the CurrencyShares Swiss Franc Trust FXF will continue to climb higher as investors continue to move money into the safe haven currency. Although the United States and the European Union have avoided a financial disaster so far, they're still faced with the same problems as before and even at its current levels the Swiss franc is considered to be a safer bet than the euro or the dollar.