Swiss National Bank Unpegs Francs to Euro, Shocks FX Firms

The foreign exchange market saw extreme volatility with the Swiss National Bank (SNB) getting rid of the Euro/Swiss Franc currency floor yesterday.

The sudden move by the SNB triggered the Swiss Franc (CHF) to rise against the Euro within the first few minutes of the central bank’s announcement.

The Swiss Franc was pegged to the Euro at 1.20 Euro/CHF during 2011, and the CHF swiftly rose 30 percent against the Euro after the SNB rid the currency floor.

At the time of writing the CHF is sitting on parity with the Euro at 1 to 1, settling at a rise of 20 percent.

The SNB foresaw a move towards quantitative easing by the European Central Bank prior to January 22, which would make the SNB’s currency floor in relation to the Euro that was introduced in 2011, untenable.

SNB’s move has shaken the global economy. Switzerland’s exports will be weakened by the rising value of the Swiss Franc as imports in the country would be cheaper than domestic goods. Swatch Group’s CEO, Nick Hayek, called the move a “tsunami” for the Swiss economy.

Foreign exchange brokers faced heavy losses, and some have shuttered their doors including Alpari UK.

James Stanton, Head of Foreign Exchange at deVere group, says, “The move yesterday heralded the start of a new currency war. Due to the enormity of this tide shift and the scope of volatility it has generated, we expect that turbulence is here to stay for a while yet.”