Swiss Franc Sets Markets Quaking
1/18/2015
Factiva
Swiss Franc Sets Markets Quaking
By Neil MacLucas and Brian Blackstone
786 words
16 January 2015
The Wall Street Journal Asia
AWSJ
1
English
Copyright © 2015 Dow Jones & Company, Inc. All Rights Reserved.
ZURICH Switzerland's central bank triggered unprecedented turmoil in the currency market on Thursday after it unexpectedly scrapped a cap on the franceuro rate, underscoring the difficulty central banks have protecting their economies from developments beyond their borders.
The abandonment of the cap, which had essentially pinned the currency at 1.20 francs a euro for the last 3
1/2 years, prompted a 20% collapse in the euro versus the franc the biggest singleday move in a developed market traders could recall. Swiss stocks fell nearly 10% as traders worried the stronger franc would hurt Switzerland's exports, especially to Europe.
With Thursday's move, Switzerland became the first domino to fall in anticipation of the European Central
Bank's decision on whether to purchase massive amounts of eurozone government bonds to raise the money supply and boost the currency area's sagging economic prospects. Most analysts expect the ECB to launch such a policy, known as quantitative easing, at its Jan. 22 meeting.
The prospect of hundreds of billions in freshly created euros flooding the markets had led to a significant weakening of the euro's exchange rate, particularly against the U.S. dollar, making the SNB's currency cap an increasingly risky and costly endeavor.
Beat Siegenthaler, a strategist at UBS, estimated the central bank faces an implied paper loss of about $40 billion on its foreign currency holdings because of the day's move.
The SNB's decision, and the frantic reaction in financial markets, highlights the challenge facing central banks that have kept supposedly temporary measures in place for many years, and the sensitivity of markets to changes in those policies. In the U.S. nearly two years ago, uncertainty over the unwinding
Factiva
Swiss Franc Sets Markets Quaking
By Neil MacLucas and Brian Blackstone
786 words
16 January 2015
The Wall Street Journal Asia
AWSJ
1
English
Copyright © 2015 Dow Jones & Company, Inc. All Rights Reserved.
ZURICH Switzerland's central bank triggered unprecedented turmoil in the currency market on Thursday after it unexpectedly scrapped a cap on the franceuro rate, underscoring the difficulty central banks have protecting their economies from developments beyond their borders.
The abandonment of the cap, which had essentially pinned the currency at 1.20 francs a euro for the last 3
1/2 years, prompted a 20% collapse in the euro versus the franc the biggest singleday move in a developed market traders could recall. Swiss stocks fell nearly 10% as traders worried the stronger franc would hurt Switzerland's exports, especially to Europe.
With Thursday's move, Switzerland became the first domino to fall in anticipation of the European Central
Bank's decision on whether to purchase massive amounts of eurozone government bonds to raise the money supply and boost the currency area's sagging economic prospects. Most analysts expect the ECB to launch such a policy, known as quantitative easing, at its Jan. 22 meeting.
The prospect of hundreds of billions in freshly created euros flooding the markets had led to a significant weakening of the euro's exchange rate, particularly against the U.S. dollar, making the SNB's currency cap an increasingly risky and costly endeavor.
Beat Siegenthaler, a strategist at UBS, estimated the central bank faces an implied paper loss of about $40 billion on its foreign currency holdings because of the day's move.
The SNB's decision, and the frantic reaction in financial markets, highlights the challenge facing central banks that have kept supposedly temporary measures in place for many years, and the sensitivity of markets to changes in those policies. In the U.S. nearly two years ago, uncertainty over the unwinding