A Tale of Two Currencies
Were you surprised to see the Swiss franc topping the news today? You weren't alone. Even Christine Lagarde, head of the IMF, said in an interview with CNBC's Steve Liesman that she was "surprised" by Switzerland's move. (Apparently they didn't give her a heads up.)
But for those of you (reasonable folk) who don't live and breathe financial markets, the move must have been a bigger shock. Some of you may have even been shocked to learn that Switzerland didn't use the euro. So, what do you make of the news?
Here's a breakdown of the end of the franc-euro rate cap taken from a lively gchat with one of my besties:
The Swiss adopted a cap on the franc-euro rate in 2011. The euro was having problems, and people were moving money to Switzerland. So the euro kept getting worse and the Swiss franc (CHF) kept getting better. They adopted the cap. But now the Swiss are saying "ugh, it's too much of a hassle to maintain this...stop limiting my fabulousness!" So late at night they decided to drop the cap. The euro was devastated and was really left with a "Dear John" letter. So the euro's value fell downward just like it's tears. Meanwhile the Swiss franc is out getting a post breakup makeover. Making things worse, the euro's frenemy, the US dollar has also been doing better over the last few months. So now the euro feels sad but it's too poor to eat Swiss chocolates while crying. The end.