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Swiss Franc Skyrockets as SNB Announce End of Currency Floor

Swiss Franc Skyrockets as SNB Announce End of Currency Floor

George Meng,

Talking Points:

  • SNB announced scrapping of its minimum exchange rate of 1.20 for EUR/CHF
  • Benchmark deposit rate lowered to negative 0.75%
  • SNB said in statement that the measure is no longer justified, likely in anticipation of large scale QE from ECB

The Swiss National Bank have surprised markets today with the announcement of the end of Swiss Franc's peg to the Euro at 1.20 EUR/CHF. In addition, the bank lowered the benchmark deposit rate to negative 0.75%. The abandonment of the currency floor sent shockwaves through the currencies market, seeing the value of the Swiss Franc skyrocket against the US dollar and Euro, as well as projecting a greater impact to the broader financial markets, with German two-year note yield dropping to record -0.154%.

While the announcement have come as a shock to the market, it may be a logical move by the SNB in anticipation of the now almost certain Quantitative Easing programme, expected to be revealed by the European Central Bank in their next meeting on January 22. The launch of large scale government bond purchases from the ECB will put immense pressure on the SNB, should the bank have chosen to defend against the 1.20 Euro Swiss Franc minimum exchange rate. Following the EU Top Court’s non-binding advice on ECB’s OMT mechanisms yesterday, essentially an approval of the legality of the widely anticipated QE programme, the SNB now sees that the measure [exchange rate floor] is “no longer justified”.

USD/CHF (5 Min Chart) - Created using Marketscope 2.0

Swiss Franc Skyrockets as SNB Announce End of Currency Floor

EUR/CHF (5 Min Chart) - Created using Marketscope 2.0

Swiss Franc Skyrockets as SNB Announce End of Currency Floor

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Written by George Meng, any comments, suggestions, or feedback please email instructor@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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