Swiss franc rockets 27% against the euro, as currency ceiling scrapped
Swiss currency has soared against the euro after the nation’s central bank shocked markets by abandoning a long-held ceiling it had put in place to stem inflows of hot money from abroad.
The Swiss franc strengthened by as much as 27 per cent against the euro, with as few as SFr0.8639 required to buy a single unit of the shared currency. The Swissie also rose 27 per cent against the dollar, with only SFr0.7542 needed to buy a unit of the US currency.
The SNB also adopted negative interest rates, but that did little to limit the Swissie’s surge.
The central bank’s brief statement said: “The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm.
“Recently, divergences between the monetary policies of the major currency areas have increased significantly — a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the [SFr1.20] exchange rate for the Swiss franc against the euro is no longer justified.”
The move came as a surprise since Thomas Jordan, SNB chairman, said as recently as December that Switzerland’s defence of the SFr1.20 rate against the euro was “absolutely necessary”.
The SNB adopted the SFr1.20 target against the euro in September 2011, when haven demand for the currency caused it to appreciate steeply, damaging the competitiveness of Swiss exporters.
Julien Manceaux at ING said: “This move ensures that the appetite for the Swiss franc as a safe-haven will remain limited, avoiding a negative shock for the Swiss economy.
“This should work at least in the near term?.?.?.?Whether, this will still be the case after ECB’s meeting on 22nd January and a likely quantitative easing announcement [from the eurozone central bank] remains to be seen. |
