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Swiss Franc Euro Peg Decoupling Fallout

On January 15th, a surprise decoupling from the euro peg caused the CHF (Swiss franc) to rally up to 23% almost overnight. What will be the fallout?

The Euro Peg and Swiss Decoupling, Why?

Since September 2011, the franc has been pegged to the euro. To bring down the franc's value, the SNB (Swiss National Bank) created new francs and used them to buy euros. Increasing the supply of Swiss francs relative to euros on FX (Foreign Currency Exchange) markets caused the franc's value to fall (maintaining the peg at 1 euro = 1.2 francs). Thanks to this policy, by 2014 the SNB had bought about $480 billion in foreign currency, equal to about 70% of Swiss GDP.

Why did the SNB decouple the franc from the euro? It is now expected that the recently announced ECB bond buying might approach €1 trillion and is open ended with €60 billionRead More …