The World Attempts to Regroup after SNB Decision

Even veteran currency traders who have seen it all were shocked.  The Swiss National Bank ’s surprise decision on Thursday to stop reining in the value of the Swiss franc prompted an extraordinary move in the currencies market, one bigger than any that traders could remember. The franc soared 23% against the euro and 21% versus the dollar, as automated trading systems jammed and investors across the globe nursed losses.

It was a demonstration of the power that central banks hold over markets but also underscored the costly disruption sudden changes can cause.  Switzerland had sought to keep the franc weak to protect its exporters, as a weaker currency makes a country’s products sold abroad less expensive. Meanwhile, the European Central Bank is poised to announce a bond-buying program that would weaken the euro. The Swiss, in a race they probably couldn’t win, appeared to give up.

Swiss private bank Julius Baer Group AG was holding a board meeting when news broke shortly after 10:30 a.m. in Zurich. The bankers paused the meeting to be sure it wasn’t a hoax. The central bank had defended its cap vigorously for the past 3½ years—at 1.20 francs to the euro—and had assured investors, as recently as Dec. 18, that it was there to stay.

WSJ

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.