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This article was published January 15, 2015 at 11:00 am.
The last modified on 15 January 2015 to 12:39 hours.
The Swiss central bank has decided to end the policy of defending the exchange rate of 1 , 20 francs per euro that maintained three years now. The decision, announced this morning, has caused a sharp decline in the euro-franc (here the graph of the day).
The single currency, stalled for time on the threshold of 1.20 francs, dropped to 0.85 recorded a fall of 32 percent. The franc has appreciated on all of its major counterparts, reaching the highest level since 1980 in the exchange with the Japanese yen. Heavy reaction also the Zurich stock exchange that has come to lose more than 11% (here the graph index SMI).
The worst performance are big exporters whose business is likely to be jeopardized by excessive apprezamento the Swiss currency. Heavy downturns have hit the shares of Swatch or Compagnie Financière Richemont, giant 13 billion francs in annual revenue that controls luxury brands like Cartier or Montbalc. The share prices of these two have suffered big declines in excess of 14% as a result of the move of the Swiss National Ban k.
The decision to introduce a minimum threshold in the exchange rate with the euro had been taken by the Swiss central bank at the height of the sovereign debt crisis in the euro area. During the summer of 2011, the markets feared the implosion of the euro. A flight of capital from government bonds of peripheral countries (including Italy) had boosted yields and spreads on government bonds of countries in the Mediterranean.
In contrast, the market seemed obsessed with finding a “safe haven” for their investments. One of the Most Popular haven assets was just the Swiss franc. During the summer of 2011, the exchange rate came to 1.04 francs to the dollar. An alarm bell for the economy of the Confederation that with this exchange rate risked heavy shocks to exports.
This prompted the Swiss national bank to run for cover by putting a security fence to defend the exchange rate. If it had fallen below 1.20 the central bank would intervene by purchasing euro in the world to maintain the “cross” stable. A policy maintained until today when, on the day that brought interest rates to new record low of -0.75%, the Swiss central bank also announced the end of the defense to the bitter end of the exchange rate.
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