Founded in 1291, Switzerland is located in central Western Europe and has many similarities in history and culture with Germany, Austria, Italy and France.
Despite being in the middle of Europe, Switzerland is not part of the European Union. In the mid-1990s, there were talks between the EU and Switzerland, but eventually Switzerland rejected the proposal to become a member of the EU. Since then, Switzerland has maintained economic independence.
Switzerland is a small country, but it is densely populated. Switzerland has a population of about 7.78 million and about 447 people per square mile.
Switzerland is famous for its neutrality. In the two world wars, it did not join any party.
Fundamental Analysis—Swiss Country Profile-Yuhui International
Neighboring countries: Germany, France, Italy, Austria
Area: 15,940 square miles
Population density: 477.4 square miles
President of the Swiss Confederation: Eveline Widmer-Schlumpf
Currency: Swiss Franc (CHF)
Main imports: machinery and transportation equipment, medicines, other chemicals, finished products
Main exports: chemicals, watches, food, musical instruments, jewelry, machinery, pharmaceuticals, rare metals, textiles, Rolex, Roger Federer
Import partners: Germany 27.7%, United States 10.6%, Italy 10.3%, France 8.4%, Russia 4.4%, United Kingdom 4%
Export partners: Germany 21.2%, US 8.7%, France 8.2%, Italy 7.9%, Austria 4.5%
Time zone: East District 1
From the perspective of average personal income, Switzerland is one of the richest countries in the world (GDP divided by population).
In 2010, Switzerland’s total output was 529.9 billion US dollars. Although it is a small country, its per capita GDP is as high as 46815 US dollars, ranking 7th in the world.
Its main trading partners are Germany, the United States, France, Italy, Austria, Russia and the United Kingdom. Like Japan, the Swiss economy is mainly dependent on exports. Its total exports are 308.3 billion US dollars, accounting for 58.2% of its GDP.
The main Swiss industries include machinery, chemicals, textiles, precision instruments and watches. Don’t laugh at the last item-it accounts for a very important part of Switzerland’s total output! In any case, to continue.
Monetary and fiscal policy
The Swiss National Bank (SNB) is currently chaired by Thomas Jordan and formulates relevant monetary policies that affect monetary and credit terms and conditions. The management committee responsible for central bank policy consists of only three members-the chairman, vice-chairman, and third person.
Unlike most central banks, the Swiss National Bank sets a three-month interest rate range (Libor) instead of a fixed value.
The purpose of the Swiss National Bank is to control the country’s money supply and affect interest rate levels. In addition, it is to keep the Swiss franc price stable.
The extremely strong Swiss franc will lead to a surge in inflation and at the same time will inhibit Swiss exports. Due to the strong dependence of the Swiss economy on exports, the Swiss National Bank prefers the weaker Swiss franc, so it will not hesitate to intervene in the foreign exchange market, making the Swiss franc relatively weak.
One of the main monetary policies of the Swiss National Bank is positioning inflation. The country’s inflation target, measured by CPI, is usually below 2% per year.
The Swiss National Bank will affect the country’s actual inflation rate through open market operations and adjusting Libor interest rates.
Speaking of open market operations, the Swiss National Bank changes Libor through a short-term repo (repo). A repurchase transaction refers to selling a specific security, obtaining cash, and promising to buy back the original bond afterwards.
If the interest rate in the open market exceeds the Swiss National Bank’s standards, the central bank will conduct repurchase transactions at a lower repo rate, thereby increasing the liquidity of other banks.
On the other hand, the Swiss National Bank reduced the liquidity by raising the repurchase rate, and finally achieved the purpose of increasing Libor.
From a fiscal perspective, one of Switzerland’s more attractive fiscal policies is that it has lower taxes in developed countries. In fact, it is regarded as a “tax haven.”
Swiss corporate tax ranges from 8.5% to 10.0%. This and the Swiss Bank Secrecy Act have made Switzerland one of the most suitable countries for doing business in the world.
Understanding the Swiss Franc
Not long ago, France, Belgium and Luxembourg all referred to their currencies as francs until they chose the euro. Now, Switzerland is the only country that uses the franc as its national currency. Its currency is called the Swiss franc.
Among all the financial wonders, the Swiss franc is also called “Swissy”.
Fortunately, Switzerland remains neutral…
Under the influence of bank secrecy laws, Switzerland has always remained politically neutral, which also makes the Swiss franc a “safe haven”. Usually, when the economic situation is uncertain, investors will transfer their funds to Switzerland, prompting the appreciation of the Swiss franc.
I am still stuck in the shining era!
Not only is Switzerland unwilling to join the EU, it is also the only country that adheres to the gold standard.
25% of the country’s cash is supported by gold reserves, which makes the correlation between the Swiss franc and the gold price reach 80%. This means that once the price of gold rises, the Swiss franc will benefit accordingly.
Important economic data related to the Swiss franc
GDP: GDP measures the total price of a country’s terminal products and services. This report reflects the changes in the total output of the economy in the previous period.
Retail sales: The retail sales report measures the monthly change in the total price of goods sold in retail mode.
Consumer Price Index (CPI): CPI measures the price change of a basket of products and services. The CPI is usually the focus of the Swiss National Bank because this report will usually be used to analyze inflation.
Trade balance: The trade balance measures the difference between the country’s total import and export prices. Swiss exports are developed, so traders use the trade balance to measure the state of the country’s economy.
What factors will affect the trend of the Swiss franc?
As mentioned earlier, since 25% of Switzerland’s cash is supported by gold reserves, the correlation between the Swiss franc and the gold price has reached 80%. As the price of gold rose, the Swiss franc rose. On the contrary, if the price of gold falls, the Swiss franc will also fall.
The development of the Eurozone and the United States
Since Switzerland is an export-oriented country, the economic development of the country is influenced by its euro zone trading partners and the United States. The main export partners of the Swiss Eurozone are Germany (21.2%), France (8.2%), Italy (7.9%), Austria (4.5%).
The United States accounts for 8.7% of total Swiss exports. The poor economic performance of any of these countries means that Switzerland’s trade volume will decrease.
The political tensions of its European neighbors, especially those in the euro area, will cause traders to turn to the Swiss franc to seek security and avoid risks.
Remember that the Eurozone is composed of 17 countries, and the European Central Bank has formulated and implemented relevant monetary policies for the group.
Taking into account the different pace of economic development of member countries, the ECB’s policies sometimes do not match the policies required by a particular country.
USD/CHF is sometimes affected by cross-exchange rates, such as EUR/CHF. The rise in the interest rate of the European Central Bank led to the appreciation of the euro, which will spread the weakness of the Swiss franc to other currency pairs, such as the dollar/euro.
Mergers and acquisitions
The main industries in Switzerland are banking and finance. Mergers and acquisitions activities, that is, buying and selling companies, are very common.
How does this affect the current price change of the Swiss franc?
For example, if a foreign company wants to annex a company in Switzerland, it needs to pay the transaction in Swiss francs. On the other hand, if a Swiss bank wants to buy an American company, it needs to sell the Swiss franc and buy US dollars.
The number of USD/CHF transactions is measured in USD. A standard lot is $100,000, and a mini lot is $10,000.
The value of each point is measured in Swiss francs and is calculated as the value of each point in USD/CHF (four decimal places are one point).
Gains and losses are denominated in Swiss francs. For a standard lot, the change value of each point is 10 Swiss francs. For a mini lot, the change for each lot is 1 Swiss franc. For example, if the current exchange rate of USD/CHF is 1.0600, then the value of a standard hand is 9.4340 USD.
The calculation of margin trading is based on US dollars. With a leverage of 100:1, trading USD 100,000 USD/CHF requires USD 1,000.
USD/CHF trading tips
The Swiss franc currency pairs (USD/CHF and EUR/CHF) are usually active only during European trading hours. Most of the two currency pairs are adjusting sideways. With this in mind, they are likely to rise or fall suddenly.
As we mentioned before, the Swiss National Bank attaches great importance to monitoring the Swiss franc valuation. The Swiss National Bank is notorious for interfering in the foreign exchange market, especially when the Swiss franc reaches certain important levels and weakens the value of the Swiss franc.
For example, if the USD/CHF falls to the lowest level in a year due to increased risk appetite, the Swiss National Bank will secretly push up the price of the currency pair.
When trading in the Swiss franc, you should pay attention to changes in the basic economic data of its main trading partner, the Eurozone. Economic or political tensions in the euro area will return investors to the safe haven Swiss franc.
With this in mind, cross currency pairs, such as changes in the direction of the euro/swiss franc, can also be used to trade the dollar/swiss franc. The ECB’s interest rate increase will push up the EUR/CHF, and its effects will also spread to the USD/CHF transaction.