Neil Davies, Head of Trading at PlutusFX, takes a look at the Swiss Franc
Over a 15 minute period this morning the Swiss Franc gained an incredible 30% against the Euro in one of the biggest FX moves ever, particularly for a major currency pair.
At 9.30 this morning EUR/CHF stood at 1.2, the level it had which the Swiss National Bank had defended for the last three years. In a shock move the SNB announced the removal of the defence, sending the Franc soaring against its biggest trading partner and within minutes a Euro would only buy you 84 Centimes, or Rappens depending on which language you prefer. Like any huge move, there has been some retracement, with some settlement for the time being at least around the 1.04 level. Nevertheless, still a 13% move.
The introduction of the cap in 2011 was put in to stem the constant appreciation of the safe haven currency seen during the worst years of the euro crises. However maintaining the ceiling had become too difficult to justify for the SNB and too expensive. In full knowledge of the likely impact the central bank also further cut its interest rate, from a negative 0.25% to negative 0.75% in an attempt to make the safe haven less attractive.
Though Swiss national may now celebrate cheaper imports and the relative value of their savings, exporters will be significantly challenged. Some 55% of all exports go to the Eurozone.
With QE by the ECB being a hot topic in FX circles, it’s possible we could be seeing the start of major short term volatility amongst major currencies.