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Swiss National Bank Policy And Its Implications For Currencies, Assets And Central Banking

On Thursday, 15th January, the Swiss National Bank (SNB) finally, and unexpectedly, threw in the towel and ceased its foreign exchange intervention to maintain a pegged rate of EURCHF 1.20. The cap was introduced in September 2011 after a 28% appreciation in the CHF since the beginning of the Great Financial Crisis ((GFC)) - from 1.68 to 1.20. After plumbing the depths of 0.85, the EURCHF rate settled at 0.99 - around 18% higher in a single day. This is a huge one day move for a G10 currency and has inflicted collateral damage on leveraged traders, their brokers and those who borrowed in CHF to finance asset purchases in other currencies. Citibank estimates that it has also cost the SNB CHF 60bln. Here is a 10-year chart of EURCHF:-

Source: BigCharts.com

The Swiss SMI stock index declined from 9,259 to 8,400 (-9.2%) whilst the German DAX index rose from… Read More …