The Swiss franc and SNB intervention — a safe haven

On 15 January 2015, just after half past ten in the morning Zurich time, the Swiss National Bank did something it had flatly ruled out only three days earlier: it scrapped the hard ceiling on the euro. Within minutes the franc strengthened by almost thirty percent and EUR/CHF collapsed from 1.20 to below parity. Several brokers went under that same day, and thousands of traders woke up to balances deep in the red. This article explains why the franc behaves like a safe haven and what the Zurich bank's interventions mean for trading.

Why the franc is a safe haven

For decades Switzerland has been seen as Europe's financial vault. Low inflation, stable institutions, vast reserves and a tradition of neutrality mean that when the world turns nervous, capital flees there. We call this safe-haven demand: in a crisis investors retreat from risky assets and buy what is regarded as safe — and alongside gold, the dollar and the yen, that is the Swiss franc (CHF).

That reputation comes at a price, and the central bank pays it most heavily. The greater the fear in the markets, the stronger the franc, and a strong franc is a problem for the whole Swiss economy. Almost half of what the country produces goes to export — watches, pharmaceuticals, machinery, financial services — and when the currency appreciates, those goods grow more expensive abroad and exporters' margins shrink. Hence the chronic dilemma of the Swiss National Bank (SNB): it has to fight the excessive strength of its own currency rather than its weakness, which sets it apart from most central banks in the world.

The 1.20 floor and its defence

This showed clearly during the euro-area debt crisis. When the threat of a breakup hung over the common currency in 2010 and 2011, capital poured into the franc and EUR/CHF closed in on one-to-one parity — untenable for Swiss industry. In September 2011 the bank took a step unprecedented for an advanced economy: it announced a hard minimum exchange rate and pledged not to tolerate EUR/CHF below 1.20.

The mechanism for defending such a floor is brutally simple. Whenever the rate neared the 1.20 line, the bank printed francs and bought euros with them, without limit. The "in unlimited quantities" pledge was meant to scare the market off testing the line, because no speculator can win against an institution that can create any amount of its own currency. For more than three years it worked — but the bank's foreign reserves swelled, at one point reaching the order of the Swiss economy's entire annual output.

The franc's black Thursday

By late 2014 the pressure had become unbearable. The European Central Bank was preparing a vast asset-purchase programme that would weaken the euro, which meant defending the floor would cost the SNB ever more printed francs and ever larger reserves. The bank faced a choice: defend the rate at any cost, or let go. It let go — without warning.

"The Swiss National Bank is discontinuing the minimum exchange rate of CHF 1.20 per euro." — Swiss National Bank, press release, 2015.

The market's reaction was so violent that it entered the textbooks. EUR/CHF fell within minutes from 1.20 to below parity, at one point reaching around 0.85 — a drop of roughly thirty percent. In a market where a daily move of one percent counts as large, this was an earthquake. Liquidity evaporated, protective orders triggered far from the levels they were set at, and losses many times exceeded the capital in the account.

The event is now a classic example of negative-balance risk. A trader betting on a weaker franc with high leverage did not simply lose the deposit — he was left owing the broker money. The brokers suffered too: some could not cover their clients' liabilities and either failed or had to rescue themselves with fresh capital. That is why European regulators later introduced negative-balance protection for retail clients. For a fuller picture of how central banks can reset a market with one move, see the article on watching the major central banks.

Negative rates and ongoing intervention

Removing the floor did not end the fight for a weaker franc; it merely changed the tools. On the same day the bank pushed its policy rate deep below zero, to minus 0.75 percent, and held it there for years. The logic was simple: if a fixed rate can no longer be held, capital must be discouraged from flowing into the franc by making investors pay for the privilege of holding it. For a long stretch Switzerland had the lowest policy rate in the world.

The second tool remained foreign-exchange intervention, only now without announcing a level to defend. The bank simply buys foreign currency when it deems the franc too strong, and sells it to support the franc — as during the high-inflation years of 2022 and 2023, when a stronger franc helped dampen import prices. The scale of these operations shows up in the bank's published data on sight deposits and foreign reserves: a sudden rise usually reveals that the bank has again been buying foreign currency. The mechanism is kin to what the Bank of Japan does in its yen policy, though Japan more often defends against weakness than strength.

What it means for franc pairs

For a trader the practical conclusion matters most: franc pairs carry a different risk profile from the average currency pair. Front and centre is EUR/CHF, the pair around which the whole floor saga unfolded and which remains the Zurich bank's main field of action. Next comes USD/CHF, the purest reflection of mood: when global fear rises, capital flows both to the franc and to the dollar, so the pair can react to geopolitics more sharply than its rate gap alone would suggest.

The heart of the matter is not which pair to pick but the awareness that tail risk hangs over each of them — a rare but extreme event triggered by a central bank decision. The franc is regarded as a "stable" currency, and that very label is the most dangerous, because it lulls vigilance and tempts traders to raise leverage. 2015 showed that a seemingly calm pair can wreck an account in minutes. The fundamental backdrop I lay out in the piece on European Central Bank decisions and their impact on the euro — because it was policy on the euro side that sealed the floor's fate.

Common misconceptions

The first and most dangerous is the belief that a central bank's move can be predicted. The Zurich bank publicly defended the floor three days before scrapping it, so guessing such a decision in advance is an illusion. The second is confusing low volatility with low risk — the franc could stand in a narrow range for years, only to leap a third of its value in a single morning. The third is underrating leverage: it was not the rate move alone that ruined traders in 2015, but the move multiplied by excessive leverage. The fourth is treating the franc in isolation from the rest of the safe-haven assets, when in fact it moves in step with gold, the dollar and the yen.

What now

1. Check how much you really risk on franc pairs. Open your broker's position calculator, enter the size you usually trade on EUR/CHF or USD/CHF, and work out what a sudden thirty percent move would do to your balance. If the result wipes out the account, cut the position — the exercise takes fifteen minutes and reshapes your perspective for years.
2. Verify your negative-balance protection. Check your broker agreement, or ask plainly in chat, whether your retail account guarantees that a loss cannot exceed the capital you deposited. That single clause decides whether, in a 2015 scenario, you would be left with zero or with a debt.
3. Start watching the bank's reserve data. Once a week, glance at the Zurich bank's published figures on sight deposits — a sudden jump is often the first signal that the bank is again buying foreign currency to dampen the franc's strength. Not to guess the rate, but to see who stands on the other side of the market.
4. Connect the franc with the other safe-haven assets. Place charts of USD/CHF, the price of gold and the yen side by side, and review a few sessions of strong market fear. You will see that they move together — which helps you tell a move driven by risk aversion from one driven by the central bank itself.