The decision last week by Swiss authorities to abandon attempts to peg its currency – the Swiss franc – to the euro has sent shockwaves through foreign exchange markets, and led to the closure of one prominent forex broker, as well as heavy losses for others.
Alpari lost around £30m as a result of the soaring value of the Swiss franc
These include the UK arm of Alpari, known as the main sponsor of West Ham Football Club. Alpari lost around £30m as a result of the soaring value of the Swiss franc during last Thursday, which rose by as much as 39 percent at one point, before settling at around 20 percent up. New York-based FXCM was hit with a $225m loss as a result of the trading.
The Swiss National Bank’s (SNB) decision came after a decade long period of trouble for the country’s currency that saw it attempt to peg it to the euro in 2011. However, in light of signs that ECB chief Mario Draghi was due to begin a round of quantitative easing within the Eurozone, Swiss authorities decided that the consequence of this would be too great on its exports.
Switzerland has traditionally been seen as a safe-haven economy for investors, and its’ currency has long been favoured as one that will be immune from too much risk. However, because of this reputation, the value of the Swiss franc jumped 30 percent over the last decade against the euro, meaning that its exports – the key part of its economy – became unsustainably costly.
The attempts at pegging the Swiss franc to the euro were seen as a way of bringing down these export prices. However, such an influx of euros into the economy would have meant Switzerland would need to follow suit to maintain its cap, therefore harming its exports.