Swiss Franc abandoning Euro cap

[Minas Tirith]

It doesn't really make a lot of sense, hurts the Swiss economy, plus the sudden, unannounced action is somewhat mysterious ...
Or do they know something everybody else isn't?

Why The Swiss Franc Shot Up 30% In A Morning

“This,” says James Stanton, head of foreign exchange at deVere Group, “is the biggest FX shocker in years.”

He is referring to the extraordinary climb of 30% by the Swiss Franc, one of the world’s most important safe haven currencies, against the euro this morning. At one stage, it was up 39% against both the euro and the dollar. Movements like this simply don’t happen in big, widely held currencies like the Swiss franc. So what happened?

The answer is simple. Three years ago the Swiss central bank put in place a ceiling of Sfr1.20 per euro to stop the currency’s appreciation, which was causing problems for Swiss exporters, among other things. This morning – to general surprise – it abandoned the ceiling. It appears to have done so because of an expected sovereign bond buying programme from the European Central Bank in the next few days. That, in turn, is expected to increase demand for safe haven currencies like the Swiss Franc, and the Swiss National Bank – the central bank – seems to have decided that it just would not be able to defend its self-imposed ceiling in the circumstances.

“A central bank does not act in such a dramatic way very often,” says Stanton. “It’s a once in a blue moon event and it has taken the currency markets by surprise.”

What does it mean for investors? In the short term, volatility; in the longer term, the Swiss franc-euro pair will presumably settle. Stanton believes it will do so at about 1:1. For shareholders, it’s not good news for Swiss exporters, who have just seen their goods become 30% more expensive to European buyers in the space of an hour or so; Swatch, for example, saw its shares fall 16%, and Switzerland’s main equity benchmark, the SMI, fell 7% on the news. The big Swiss banks, UBS, Credit Suisse and Julius Baer, all tumbled too.

Indeed, for the moment, we leave the final word to Swatch and its chief executive, Nick Hayek, who released a statement this morning which captures the stunned mood of Swiss exporters. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.”

_http://www.forbes.com/sites/chriswright/2015/01/15/why-the-swiss-franc-shot-up-30-in-a-morning/

 

[Zasino]

It doesn't really make a lot of sense, hurts the Swiss economy, plus the sudden, unannounced action is somewhat mysterious ...
Or do they know something everybody else isn't?

IMO it does make sense. The Swiss National Bank decided on the "peg" three years ago, allegedly to protect the local economy and counteract the chronic appreciation of the Swiss franc. In fact, IMO it was yet another move of "harmonization" of Switzerland with the EU. In other words, a backdoor EU membership.
Subsequently, in order to hold that peg, the SNB had to massively buy Euros, printing a lot of francs in the process, in a way subsidizing the EU.
I think at some point somebody just said enough is enough, noting the not-so-rosy outlook of the EU economy, the likely exit of Greece, etc., and the possible end of the EU delusion.

“A central bank does not act in such a dramatic way very often,” says Stanton. “It’s a once in a blue moon event and it has taken the currency markets by surprise.”

He's whining. Actually, a central bank should always act like that. Otherwise it's insider trading galore, and a feast for the speculators.
This time, many speculators have been pounded because they were on the wrong side of the trade. And I'm enjoying the Schadenfreude.

On the other hand, tend of thousands of border workers (work in Switzerland, paid in francs, but live in the EU) just got a 20% rise. Good for them. At least they do useful work, unlike the "moneychangers".
.A

 

[shijing]

Paul Craig Roberts had this to say about it in a recent SOTT article:

http://www.sott.net/article/291469-Paul-Craig-Roberts-Ruin-is-Americas-future

Yesterday there was a black swan event, an event that could yet unleash other black swan events. The Swiss central bank announced an end to its pegging of the Swiss franc to the euro and US dollar.

Three years ago, flight from euros and dollars into Swiss francs pushed the exchange value of the franc so high that it threatened the existence of the Swiss export industries. Switzerland announced that any further inflows of foreign currencies into francs would be met by creating new francs to absorb the inflows so as not to drive up the exchange rate further. In other words, the Swiss pegged the franc.

Yesterday the Swiss central bank announced that the peg was off. The franc instantly rose in value. Stocks of Swiss export companies fell, and hedge funds wrongly positioned incurred major hits to their solvency.

Why did the Swiss remove the peg? It was not a costless action. It cost the central bank and Swiss export industries substantially.

The answer is that the EU attorney general ruled that it was permissible for the EU central bank to initiate Quantitative Easing - that is, the printing of new euros - in order to bail out the mistakes of the private bankers. This decision means that Switzerland expects to be confronted with massive flight from the euro and that the Swiss central bank is unwilling to print enough new Swiss francs to maintain the peg. The Swiss central bank believes that it would have to run the printing press so hard that the basis of the Swiss money supply would explode, far exceeding the GDP of Switzerland.

The money printing policy of the US, Japan, and apparently now the EU has forced other countries to inflate their own currencies in order to prevent the rise in the exchange value of their currencies that would curtail their ability to export and earn foreign currencies with which to pay for their imports. Thus Washington has forced the world into printing money.

The Swiss have backed out of this system. Will others follow, or will the rest of the world follow the Russians and Chinese governments into new monetary arrangements and simply turn their backs on the corrupt and irredeemable West?

 

[Rich]

He's whining. Actually, a central bank should always act like that. Otherwise it's insider trading galore, and a feast for the speculators.
This time, many speculators have been pounded because they were on the wrong side of the trade. And I'm enjoying the Schadenfreude.

I enjoy the Schadenfreude too :) Although I'd be surprised if there hadn't been a degree of insider opportunistic positioning from private SNB shareholders.

I thought the following was well written and would support the theory of the SNB not really having a choice:

It would seem that last week’s rally in gold was Swiss National Bank-driven, plain and
simple. It is difficult to get a handle on the ramifications of what just happened with the
Swiss “unpegging” from the Euro. It was becoming prohibitively expensive for the SNB
to keep buying Euros and trashing their own economy in the process. Ostensibly, this is
a tale of a central bank telling the US and the rest of the EU, enough! We have had it,
and we are now going to be more fiscally responsible.

Right. Just after opting not to have the Swiss franc backed proportionately by gold, a
move that would have been an act of fiscal responsibility. If there is one constant about
world-wide central bankers, it is that they lie on an ongoing basis. The truth, if it ever
comes out, may not become apparent for the next several months. It makes no sense for
one part of the central banking cabal to pull a “surprise attack” on the rest of the group.

If there is one thing certain about this insidious group is that they always act in their own
best interests, which means always against the public’s interest. The SNB telling others
they have had enough should be viewed as more kabuki theater. The least surprising
aspect of the SNB move toward “independence” is that there was probably a fantastic
fortune made, in the process. That would be more in keeping with what to expect.

The pulling away from a 1.20 peg to the Euro is as much an independent move as is the
unmitigated destruction of the crude oil market, equally as “accidental” as the suppression
of gold and silver over the past few years, [actually decades], or the freak events of
Ukraine, where an elected government just happened to undergo a CIA-led coup, the
whole sorry event a tragic mess.

The world is changing, and the sequence of events become shorter and shorter from one
to another. While the Swiss have center stage, all other events are still taking place, and
foremost among them is the destructive US starting wars wherever possible, threatening
and enforcing economic warfare. Is it an accident that two days prior to the slaying of a
dozen people in Paris that French President Hollande was calling for recognition of
Palestine and an end to Russian sanctions? The US has an uncontrollable fixation with
Russia and the rest of Europe suffers for agreeing to be the US sanction lap dog. Woe be
to any country, including France, that gets in the way. [Including the SNB, as well.]

Enjoy the winter, Europe. You have sown the seeds of self-implosion, blaming Russia for
everything, almost all of which is fabricated. In response to such ongoing provocations,
is it any wonder Russia has turned East, now having Turkey be the transit country for the
natural gas on its way to other destinations? Europeans have always viewed themselves
as being smarter and more sophisticated than Americans. Time to have another look in
the mirror. Sad course of events everywhere, yet all purposefully brought on by those
in charge, or seemingly in charge.

_http://edgetraderplus.com/market-commentaries/gold-and-silver-swiss-national-bank-rally-enough-for-a-change

Be interesting to see how this plays out and whether other pegged-currencies may follow suit.

 

[Niall]

Right. Just after opting not to have the Swiss franc backed proportionately by gold, a
move that would have been an act of fiscal responsibility. If there is one constant about
world-wide central bankers, it is that they lie on an ongoing basis. The truth, if it ever
comes out, may not become apparent for the next several months. It makes no sense for
one part of the central banking cabal to pull a “surprise attack” on the rest of the group.

Aha, I'd forgotten about that. Yes, this move being 'Switzerland looking after its own best interests' is the last place we ought to look. First and foremost to consider is 'managing the markets to uphold Western hegemony'.

 

[Zasino]

Aha, I'd forgotten about that. Yes, this move being 'Switzerland looking after its own best interests' is the last place we ought to look. First and foremost to consider is 'managing the markets to uphold Western hegemony'.

Niall,
maybe, although we do no have nearly enough knowledge to state one or the other (I'm sure *I* do not). In general, I'd say it's by their fruit that you will recognize them.
Example, consider the huge Russian deposits in Swiss banks. These just appreciated by a whopping 20%. So one could say that the purpose of the unpegging operation was to give Putin a hand, at the same time swatting some Western hedge fund cockroaches.
What seems clear to me is that the SNB went against this absurd Keynesian money printing frenzy (started by the US FED). Voluntarily or not, I cannot tell.
.A

 

[LjRoxArk]

Asino you said :

consider the huge Russian deposits in Swiss banks. These just appreciated by a whopping 20%. So one could say that the purpose of the unpegging operation was to give Putin a hand, at the same time swatting some Western hedge fund cockroaches.

I used to trade the Forex heavily, 20+ years ago, as a way to take advantage of large sums of capital that were sporadically available to my company. I made a lot of my administrative "nut" by trading Forex and Comex daily. So I still watch it from time ot time. I am STUNNED at the bold move by the Swiss. Waxing that I 'm too broke to play right now, myself...lafn.

Somebodies made a KILLING on this, you can bet your TED Spread on that !!

And I believe, as you have discerned, that Putin is the biggest benificiary in light of Russian deposits in the Swiss Banks. This is one of those , "curiouser and curiouser" moments in the FOREX for the EU. I'm in agreement with the SCB move and it is indeed the function of a Central Bank to maintain a modicum of stability in volatilty; they have always been the safe haven because of their independence from the rest of the herd.

Just my 2 cents.

 

[Zasino]

I enjoy the Schadenfreude too :) Although I'd be surprised if there hadn't been a degree of insider opportunistic positioning from private SNB shareholders.

Possibly, although I'd see it as "collateral damage" :)

[...] Ostensibly, this is a tale of a central bank telling the US and the rest of the EU, enough! We have had it, and we are now going to be more fiscally responsible.
Right. Just after opting not to have the Swiss franc backed proportionately by gold, a
move that would have been an act of fiscal responsibility. [...]

Oh please. This makes for a nice soundbite, but it's actually apples and oranges. The gold referendum was rejected by the Swiss voters, while the un-pegging was decided by the SNB.
BTW there are multiple contextual reasons for the referendum failure, and none of these have to do with the actual merits or demerits of the proposal.
Arbitrarily conflating things is usually not helpful. (I'm addressing the writer of that quote, not you Theseus!)
.A

 

[LQB]

I enjoy the Schadenfreude too :) Although I'd be surprised if there hadn't been a degree of insider opportunistic positioning from private SNB shareholders.

Possibly, although I'd see it as "collateral damage" :)

Unfortunately there much collateral damage to EU homeowners (in Poland and other countries) that have their mortgages denominated in Swiss Francs. With the peg in place, this was no issue - big issue for them now.

 

[Zasino]

I enjoy the Schadenfreude too :) Although I'd be surprised if there hadn't been a degree of insider opportunistic positioning from private SNB shareholders.

Possibly, although I'd see it as "collateral damage" :)

Unfortunately there much collateral damage to EU homeowners (in Poland and other countries) that have their mortgages denominated in Swiss Francs. With the peg in place, this was no issue - big issue for them now.

Sure, but ask yourself why somebody would finance an asset with a mortgage in any other currency than the one in which the asset is denominated?
That's a big NO-NO in investing. In fact, it's plain stupid. And now they blame the SNB?
.A

 

[thorbiorn]

The Danish newspapers wrote this mornng that some international investors made good money on the change of the Swiss Franc. Now thrilled by success and gains they have eyed another target for speculation. The Danish Kroner, which like the CH Franc has been tied to the EU, and now they are rattling the box. As a result the Danish National Bank has been forced to sell Kroners and buy huge amounts of foreign currency to keep the rate of the Dkr as low as permittable by the agreement with the EU. It is frustrating that speculators are so powerful that they can unsettle a country if they like to, create problems for others, while mostly earning money for themselves, but then this is nothing new.

 

[axj]

The Danish newspapers wrote this mornng that some international investors made good money on the change of the Swiss Franc.

There were also many large hedgefunds who lost a lot of money because they were shorting the Swiss Franc.

 

[eyesoftheworld]

I always wondered why they had the peg in the first place... it seems that they think the EU is going to go so far overboard printing, that it will fail. Greece first followed by Spain and Italy.

 

[griffin]

I always wondered why they had the peg in the first place... it seems that they think the EU is going to go so far overboard printing, that it will fail. Greece first followed by Spain and Italy.

The Swiss central bank had accumulated something like 450bn euros on its balance sheet attempting to maintain its cap on the Swiss franc. That's roughly the size of the entire Swiss GDP. If the European central bank (ECB) starts bailing out the EU banksters with 'qualitative easing' - that is, printing euros - the cap would be unsustainable. Therefore the Swiss central bank bailed, taking a loss of about 100bn euros now in order to avoid a much larger loss later. Russians and others holding Swiss francs won big, and several hedge funds that were short Swiss francs have failed and suddenly gone out of business.