Hedge Funds’ Opinions on Swiss Franc Ceiling

The Swiss National Bank introduced a ceiling of 1.2 exchange rate of Euro to Swiss Franc. Since the move 3 days ago, the Swiss Franc has dropped 10% to the Euro, and the exchange rate is just above 1.2. According to some traders, the latest exchange rate is about 1.2157, indicating that the Swiss National Bank has to offset investors’ demand of the Franc.

Hedge fund managers think that Swiss National Bank is trying to protect large amounts of capital from rushing into Switzerland, but the bank is having a hard time doing so. Some investors hope to make profits from the appreciation of the Swiss Franc by purchasing exotic options. If the Swiss National Bank’s plan does not succeed in the next six months, the investors will make money from the depreciation of the Euro to the Swiss Franc.

Alex Merk, chief investment officer of the Merk Investments, told WSJ that his company is considering purchasing the Swiss Franc in a few weeks. According to Merk, the decision of Swiss national bank on Tuesday put Swiss Franc in a relative weaker position. However, the European debt crisis will lead the investors continue to buy Swiss Franc, making the exchange rate intervention unsuccessful.

Helie d’Hautefort, CEO of Overlay Asset Management, believes that the intervention will work in the short term. But he still does not want to sell Swiss Franc, as he thinks more investors will purchase Swiss Franc because of European debt crisis. He told WSJ that the market would challenge Swiss national bank to see whether the intervention would succeed. Experience told us that such exchange rate regulation cannot last for a long time, he said. Therefore, Overlay is taking a wait-and-see attitude.

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