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Talking Points:

  • Swiss National Bank introduces negative interest rates
  • SNB reiterates it will continue to defend 1.20 EUR/CHF floor
  • EUR/CHF jumps by 80 pips from 1.2010 to 1.2092

The Swiss National Bank (SNB) has surprised markets by introducing negative interest rates, and has reiterated that it will continue to defend the 1.20 EUR/CHF floor with the “utmost determination”. This follows a long period of time where the exchange rate has threatened to dip below the floor multiple times.

The new LIBOR target range by the central bank will be -0.75% to 0.25%, with interest rate for sight deposits at -0.25%. This means commercial banks will be charged 0.25% interest to deposit funds at the central bank, and the negative rate will act as a disincentive for safe-haven buying of the Swiss Franc. The SNB also announced it is “prepared to buy unlimited foreign currency to shield [the] cap”, displaying strong conviction on maintaining the floor.

Following the announcement, EUR/CHF rose from 1.2010 to 1.2092 within the space of 15 minutes. Meanwhile USD/CHF rallied by close to 100 pips. Currency Strategist Ilya Spivak sees the next potential resistance for the pair at 0.9835, while support rest at 0.9660.

EUR/CHF (5 Min Chart) - Created usingMarketscope 2.0

Swiss Franc Plummets After SNB Introduces Negative Interest Rates

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Written by George Meng, any comments, suggestions, or feedback please email gmeng@fxcm.com