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 initially jumped between 78 cents and 1.20 francs to and fro. After some time, the margin narrowed to 1 to 1.20 Swiss francs, before the course began leveling off at about 1 franc. However, there are some further upward trend at current exchange rates between 1.02 and 1.03 francs. This represents an appreciation of the franc by almost 15 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 then by up to 10 percent, most recently he was more than 8 percent in the red. Particularly strong plummeted the prices of banks: The Credit Suisse shares were more than minus 15 percent of the biggest losers in the SMI, the titles of UBS lost more than 10 percent. Export-dependent companies were also among losers: The prices of luxury goods manufacturer Richemont and the watch manufa cturer Swatch fell by about 14 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.
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Analysts at French bank BNP Paribas had expected that the SNB will reduce the face of accumulated foreign exchange reserves only the interest. The appreciation leads to declining import prices, which will push the inflation rate. In addition, it will load the export sector, especially with regard to the euro area, where 55 percent of Swiss exports went.
Investors in the stock market should wait for the next few days and will not sell swiss shares in a panicked environment, says VP Bank. Meanwhile expects Helaba analyst Ulrich Wortberg so that adjust between the euro and Swiss franc courses in the field of parity.
At 13.15 clock SNB President Thomas Jordan will hold a press conference.
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