Swiss franc rises sharply after US Treasury announcement

Franc significantly stronger following US announcement Keystone-SDA

On Wednesday afternoon, the Swiss franc suddenly rose sharply in value against the US dollar, but also against the euro. The main reason is an announcement by the US Treasury.

The dollar/franc exchange rate fell from over 0.81 to just under 0.80, while the euro/franc exchange rate fell from over 0.94 to as low as 0.9323. Traders attributed this primarily to dollar weakness. This was reportedly triggered by the US Treasury, which intends to significantly increase its repurchases of long-term bonds.

Yields on US government bonds fell sharply immediately following the announcement. This makes US bonds less attractive to investors, and capital flows are increasingly moving into other countries or asset classes, which immediately weakened the dollar. Shortly after the announcement, the price of gold therefore rose by more than $100 (CHF79) to just under $4,500 per ounce. Bitcoin also climbed back up to nearly $70,000, reaching its highest level since early June.

The Treasury Department’s move signalled concern about the ongoing sell-off in the bond market, which had driven yields on 30-year bonds to their highest level since 2007. The recent sharp rise in yields had triggered concerns on the financial markets.

Stronger against the euro too

Market sources suggested that the franc’s appreciation against the euro was also linked to this announcement. In recent weeks, the franc had generally been on the weaker side. The US announcement should therefore be seen merely as a catalyst that has now led to a counter-movement, a trader told the AWP news agency. In particular, the large interest rate differential with the US and the eurozone had recently been putting the franc under pressure.

Furthermore, the franc’s role as a “safe haven” could also be a factor. Iran has threatened attacks on European soil, which is causing uncertainty and driving investors towards safe-haven currencies such as the franc. Overall, therefore, one could speak less of genuine franc strength and more of a combination of various factors that are benefiting the franc, the trader added.

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Translated from German, reviewed by an English Department journalist.