The Swiss National Bank (SNB) has surprising given the established more than three years ago € minimum rate of CHF 1.20 on Thursday. The rate of the Swiss franc occurred after notification of the decision a wild ups and downs. In an unprecedented pace buy and sell orders were processed. “It’s not every day that a central bank simply a currency the ground f rom under the feet,” says Chris Beauchamp, market analyst at IG Markets.
The euro exchange rate of the franc jumped here from 78 cents to 1.20 francs to and fro. After some time, the margin narrowed to 1 to 1.20 Swiss francs, before leveling off of the rate at 1.04 francs. This represents an appreciation of the franc by more than 13 percent.
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At the same time, the central bank had lowered the interest rate for balances on current accounts that exceed a certain allowance of 0.5 percentage points to minus 0.75 percent. The target range for its reference interest rate three-month Libor she moved further into negative territory at minus 1.25 to minus 0.25 percent.
The Swiss SMI share index fell by 7 per cent thereafter. Particularly strong export prices plummeted dependent companies. The courses of deep sea drilling specialist Transocean, the cement manufacturer Holcim and the luxury goods manufacturer Richemont fell by more than 10 percent. “People are clearly afraid that something bigger is imminent,” said Beauchamp.
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The National Bank had the minimum price originally introduced because they saw threatened by a strong upward pressure on the franc domestic exports. This minimum price they had since defended by interventions.
“The minimum course was introduced at a time of massive overvaluation of the Swiss franc and the largest uncertainty in the financial markets,” the SNB said on Thursday. “The Swiss franc remains indeed highly valued, but the overvaluation has reduced overall since the introduction of the minimum exchange rate.”
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With the rate cut, the SNB will dampen the effect of the appreciation of the VP Bank believes. You should bow to market pressures, but put some of their credibility on the line. Be clearly have been too much for the monetary authority intervention in recent weeks. With the introduction of the minimum exchange rate was at individual, has not been thought of permanent interventions.
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Finally, is likely to have played a certain role in deciding the gold initiative. The population is against the construction of high-Euro foreign exchange holdings skepticism. This was a side effect of the defense of the franc. Ultimately, the SNB had therefore had a legitimacy problem.
According to Jonathan Webb, a strategist at investment bank Jefferies, the SNB’m probably assume that the ECB will ease monetary policy in the coming week. In view of the upcoming elections in Greece it would then become quite difficult for the SNB to keep the minimum price upright.
“Obviously they expect strong inflows and have decided that the costs are too high,” said Geoffrey Yu, a senior currency strategist at UBS in London, the Bloomberg news agency. “They assume that after a quantitative easing from flowing too much money, so they need a plan B”.
It is questionable whether the Swiss company can cope with the current rates against the euro, the VP Bank writes. The franc will therefore probably depreciate in the medium term. Investors should wait for the stock market the next few days and will not sell swiss shares in a panicked environment. Helaba analyst Ulrich Wortberg expects to be set between Euro and Swiss francs courses in the field of parity.
At 13.15 clock SNB President Thomas Jordan will hold a press conference.
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