The Swiss National Bank’s shock move today to stop intervening in the foreign exchange market all but guarantees the European Central Bank will finally introduce quantitative easing when it meets Jan. 22. Switzerland is surrendering before a wave of post-QE money fleeing the euro threatens to make a mockery of its currency policy. It’s also capitulating as slumping oil brings global deflation ever closer.
It’s an astonishing U-turn. Just two days ago SNB Vice President Jean-Pierre Danthine told Swiss broadcaster RTS that “we’re convinced that the cap on the franc must remain the pillar of our monetary policy.” He added, though, that it was “very possible” that QE would make defending the threshold more difficult. It seems highly probable that the ECB has winked about its policy intentions to its Swiss counterparts.
The ensuing whipsaw in the currency market is unprecedented. The franc immediately appreciated almost 30 percent against the currencies of the Group of Ten industrialized nations, and surged to a record against the euro.
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