The Euro to Swiss Franc (EUR/CHF) exchange rate plummeted to its lowest level on record on Thursday after the Swiss National Bank stunned the currency market by announcing that it has abandoned the cap on the currency’s value against the Euro.
The announcement saw the Swiss Franc soar by a staggering 30% against the single currency and began a bout of chaotic trading as investors and traders panicked. One trader was reported to have described the flurry of trading as ‘carnage’.
The Swiss Bank also announced that it has once again slashed interest rates to send rates from -0.25% to -0.75% in a bid to increase the amount investors have to pay to hold money in Swiss deposits. The move also increased speculation that the European Central Bank will begin a full-scale quantitative easing programme at next week’s monetary policy meeting.
‘My intial reaction was that it is a sign the ECB is about to do something, which makes it odd that the reaction has been so negative across European stocks. However, it’s not every day that a central bank pulls the rug out from underneath something in such a massive way, and clearly people are worried that there’s something bigger afoot,’ said Chirs Beauchamp, a market analyst from IG.
After the announcement, the Swiss currency surged to its best level in more than three years against the US Dollar and leapt higher against the Pound Sterling.
Economists are now increasingly concerned that something else is occurring in the Eurozone as they branded the move to ditch the gap and slash interest rates as a very risky move. That perceived riskiness is why the currency markets have experienced such turmoil.
‘This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss Franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate,’ said the SNB in a statement, which was published shortly after the announcement.
The Euro is forecast to fall even further on Friday as economists expect that inflation data out of Germany and the wider Eurozone will confirm that the currency bloc slid into deflation territory in December.
Concerns over the upcoming Greek general election will also combine with expectations that the ECB will introduce a qe programme at next week’s meeting.
Switzerland meanwhile is set to release its retail sales data for the month of November.
Euro Exchange Rate News:
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