Swiss stun markets and scrap franc ceiling - FT Switzerland’s central bank stunned markets in one of the most dramatic currency interventions in decades as it unexpectedly abandoned a ceiling put in place more than three years ago, sending the franc soaring against the euro. The Swiss currency surged as much as 39 per cent against both the euro and the dollar, one of the sharpest appreciations in recent history, after the Swiss National Bank said it would no longer maintain its SFr1.20 threshold. The decision was not taken as part of a co-ordinated policy with other central banks, said a person with knowledge of the situation. Christine Lagarde, head of the International Monetary Fund, said she found it “a bit surprising” that the SNB had not warned her of the move. The European Central Bank is next week expected to embark on a sovereign bond buying programme aimed at reviving growth and saving the eurozone from the ravages of deflation. A launch of full-blown quantitative easing would precipitate massive demand for the Swiss franc, widely seen as one of global markets’ stronger havens — and would have made it increasingly difficult for the SNB to defend its currency ceiling. The move triggered mayhem on foreign exchange trading desks and sent investors who had been betting on the ceiling remaining scrambling to close positions. “Anyone caught on the wrong side of this will be lying on the floor,” said one hedge fund manager. “There was a degree of shock and an equal amount of horror,” said a banker on a London trading floor after the news broke at 10.30am European time. In late trade, the euro was down 13.8 per cent at SFr1.0355. The ceiling was introduced in 2011 after the eurozone debt crisis saw investors pile into Swiss assets as a perceived haven, strengthening the franc and alarming central bank officials who wanted to protect exporters. Yet the SNB has increasingly faced questions over its bloated balance sheet as its attempts to keep the franc weak resulted in a record pile up of SFr495bn in foreign currencies — about 80 per cent of Swiss gross domestic product. The decision highlights the difficulties that central banks of smaller developed economies, such as Switzerland and the UK, face as they navigate the turbulent waters between the US Federal Reserve, which is closer to tightening monetary policy, and the ECB, which is poised to loosen it. It also marks a volte-face for the SNB, which insisted on Monday that it remained committed to the ceiling. Thomas Jordan, chairman of the SNB’s governing board, defended the decision, saying that once it was clear that the policy was no longer sustainable, it was important to act quickly. Thomas Jordan, chairman of the Swiss National Bank (SNB), addresses a news conference in ZurichJanuary 15, 2015. The Swiss National Bank scrapped its cap on the franc on Thursday sending the safe-haven currency crashing below the 1.20 per euro floor it set over three years ago. The bank’s move was greeted with dismay by Switzerland’s exporters, as a stronger franc will make their products more expensive abroad . The country’s main equities index, the SMI, fell 10 per cent on the bank’s announcement. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country,” said Nick Hayek, chief executive of Swatch Group, the watchmaker. Its shares tumbled 16.4 per cent to SFr382.30. Bank shares also declined. UBS fell 11.7 per cent to SFr14.73, Credit Suisse was 11 per cent weaker at SFr20.66, and Julius Baer fell 11.5 per cent to SFr40.40. The move hit eastern European economies’ currencies, with the Polish zloty initially down 40 per cent to the franc.
Posted on: Fri, 16 Jan 2015 12:15:45 +0000
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