Why The Swiss Franc Shot Up 30% In A Morning
“This,” says James Stanton, head of foreign exchange at deVere Group, “is the biggest FX shocker in years.”
He is referring to the extraordinary climb of 30% by the Swiss Franc, one of the world’s most important safe haven currencies, against the euro this morning. At one stage, it was up 39% against both the euro and the dollar. Movements like this simply don’t happen in big, widely held currencies like the Swiss franc. So what happened?
The answer is simple. Three years ago the Swiss central bank put in place a ceiling of Sfr1.20 per euro to stop the currency’s appreciation, which was causing problems for Swiss exporters, among other things. This morning – to general surprise – it abandoned the ceiling. It appears to have done so because of an expected sovereign bond buying programme from the European Central Bank in the next few days. That, in turn, is expected to increase demand for safe haven currencies like the Swiss Franc, and the Swiss National Bank – the central bank – seems to have decided that it just would not be able to defend its self-imposed ceiling in the circumstances.
“A central bank does not act in such a dramatic way very often,” says Stanton. “It’s a once in a blue moon event and it has taken the currency markets by surprise.”
What does it mean for investors? In the short term, volatility; in the longer term, the Swiss franc-euro pair will presumably settle. Stanton believes it will do so at about 1:1. For shareholders, it’s not good news for Swiss exporters, who have just seen their goods become 30% more expensive to European buyers in the space of an hour or so; Swatch, for example, saw its shares fall 16%, and Switzerland’s main equity benchmark, the SMI, fell 7% on the news. The big Swiss banks, UBS, Credit Suisse and Julius Baer, all tumbled too.
Indeed, for the moment, we leave the final word to Swatch and its chief executive, Nick Hayek, who released a statement this morning which captures the stunned mood of Swiss exporters. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.”
He is referring to the extraordinary climb of 30% by the Swiss Franc, one of the world’s most important safe haven currencies, against the euro this morning. At one stage, it was up 39% against both the euro and the dollar. Movements like this simply don’t happen in big, widely held currencies like the Swiss franc. So what happened?
The answer is simple. Three years ago the Swiss central bank put in place a ceiling of Sfr1.20 per euro to stop the currency’s appreciation, which was causing problems for Swiss exporters, among other things. This morning – to general surprise – it abandoned the ceiling. It appears to have done so because of an expected sovereign bond buying programme from the European Central Bank in the next few days. That, in turn, is expected to increase demand for safe haven currencies like the Swiss Franc, and the Swiss National Bank – the central bank – seems to have decided that it just would not be able to defend its self-imposed ceiling in the circumstances.
“A central bank does not act in such a dramatic way very often,” says Stanton. “It’s a once in a blue moon event and it has taken the currency markets by surprise.”
What does it mean for investors? In the short term, volatility; in the longer term, the Swiss franc-euro pair will presumably settle. Stanton believes it will do so at about 1:1. For shareholders, it’s not good news for Swiss exporters, who have just seen their goods become 30% more expensive to European buyers in the space of an hour or so; Swatch, for example, saw its shares fall 16%, and Switzerland’s main equity benchmark, the SMI, fell 7% on the news. The big Swiss banks, UBS, Credit Suisse and Julius Baer, all tumbled too.
Indeed, for the moment, we leave the final word to Swatch and its chief executive, Nick Hayek, who released a statement this morning which captures the stunned mood of Swiss exporters. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.”
