Surprise Huge Move In Swiss Franc From Switzerland Central Bank

Surprise Huge Move In Swiss Franc From Switzerland Central Bank
From 'tsunami' to 'bombshell', reactions to Swiss shock move

by Sara Sjolin

The Swiss National Bank took financial markets by deep surprise on Thursday, when it scrapped its euro exchange cap and lowered interest rates.

[The Swiss Franc surged more than 20%, ending more than three years of calm in Swiss foreign exchange markets. The Swiss National Bank has intervened in markets since September 2011 to prevent the franc climbing too high, acquiring billions of Euros in an effort to stop the common currency dropping below 1.20 to the franc. In the aftermath of the SNB's shock move, the Euro plunged as low as CHF0.93.  The impact reverberated throughout currencies markets, sending the euro plunging against the dollar to $1.1579 (FXE), its lowest point November 2003. The dollar (UUP) also shot higher more broadly, with sterling adding a cent to $1.53.]

The move sent shock waves through the currency and stock markets, with the Swiss franc (CHFUSD, +16.23%)  rallying more than 30% against the dollar (FXF) and (euro CHFEUR), +16.86%  at one point.

All the companies in the Swiss Market Index were in the red, as the stock benchmark headed for its worst day since 1989.

Swatch Group chief executive Nick Hayek called move a "tsunami" for the Swiss economy.

"Words fail me! Jordan is not only the name of the SNB president, but also of a river... and today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," Hayek said, media reports said.

At UBS, chief investment officer Mark Haefele said the move had "come as a complete surprise".

"Nonetheless, the negative impact of this move on the Swiss economy will be large. Swiss CPI inflation could be affected by as much as -0.9% month-on-month. The direct effect on Swiss goods exporters is estimated to be about 5 billion Swiss Francs (-0.7% of Swiss GDP)," he said in a statement.

They weren't the only one bemused by the SNB move. Here are some of the first reactions from analysts:

"The SNB pulls out the carpet from under the floor as its protectionist approach results in complete carnage, on the back of the central bank's removal of the four-year peg to support its currency and economy. It's the biggest move I've seen in my 30-year career as a trader, and undoubtedly the Swiss officials timed their move right, in line with reducing their interest rates. [...] The SNB's peg - AKA their self-defense model to safeguard their economy - has bought warfare to the markets with the Swiss bulls getting totally cleaned out." - Steve Woodcock, head of trading at TradeNext

"With ECB easing coming up, and worries over both Russia and Greece looming, we cannot rule out that the SNB will have to do more than today's rate cuts to curb the strength of a floating Swissie." - Danske Bank analysts

"The timing of the move is a surprise, coming just a month after the last change in interest rates. But it could well be that the SNB has chosen to front-run the likely move to QE from the ECB, whether than happens next week or the subsequent meeting in March. [...]Clearly, the SNB felt that they were giving with one hand and taking away with the other by moving rates further into negative territory. But at this point in time, the SNB has broken a dam wall and the waters have flooded out. It will take time to see what lies beneath." - Simon Smith, chief economist at FxPro.

"If sustained, the impact of the decision on Switzerland's economy could be significant for a few years. Exporters will suffer lower price competitiveness and might move more production outside the country. Tourism and retail trade are also likely to suffer. A period of strong deflation is a serious risk. However, the Swiss economy is used to occasional periods of overvaluation and should ultimately be able to cope." - Christian Schulz, senior economist at Berenberg

Courtesy of MarketWatch.com