Rabbit Hole Intervention Fails: Wild Moves In Swiss Franc As Switzerland Abandons Euro Peg; Morals Of The Story

Today in a surprise announcement, the Swiss National Bank abandoned its silly policy of defending a peg to the euro.

Previously, the bank had set a line in the sand, defending the peg at all costs. That policy meant Swiss accumulation of hundreds-of-billions of euros that today plunged in price.

Wild Swings

 

click on chart for sharper image

32% Move in 30 Minutes

As the above chart from Investing.Com shows, the Swiss Franc soared in value from 1.20-per-euro all the way to 0.82-per Euro.

That is a 32% currency move vs. the euro in a matter 30 minutes! Since then, the Franc declined back to 1.03-per euro.

One week from today, the ECB is expected to announce a massive €1 trillion QE intervention. If the euro declined as expected, the Swiss National Bank would have to accumulate billions more euros to defend the peg.

With that, the Swiss National Bank finally threw in the towel on the euro peg that it promised just last month would defend with “the utmost determination”. 

Swiss Franc Rockets

The Financial Times has some interesting comments in Swiss Franc Rockets as Currency Ceiling Scrapped. 

 The SNB’s decision highlights the difficulties that central banks of smaller 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 dramatic volte-face for the SNB, which insisted as recently as December that it remained committed to preventing the franc from strengthening beyond SFr1.20 to the euro, adding that it would enforce the policy with “the utmost determination”.

Thomas Jordan, chairman of the SNB’s governing board, defended the decision though, saying that once it was clear that the policy was no longer sustainable, it was important to act quickly. “It is better to do it now than in six or 12 months when it would hurt more,” he said.

Simon Derrick, chief market strategist at BNY Mellon, said that the SNB had clearly anticipated a huge surge of inflows into Swiss franc assets in the coming days and “saw little reason to provide buyers with an artificially cheap rate”.