Loading ...After December’s Rouble rout I thought it would be some time before we experienced such a surprising and sharp move in the foreign exchange markets. Yet yesterday the Swiss National Bank (SNB) unleashed the largest shock markets have seen in some time—a “tsunami” as the Swatch CEO Nick Hayek put it. The Swiss Franc (CHF) appreciated by 39% after the SNB removed its exchange rate floor of 1.20 on the EURCHF. At the end of trading it was still 16% up and is now jostling around parity.
People are still picking through the rubble of yesterday’s events and stories are now surfacing of numerous FX brokers/dealers having their capital wiped out. I suspect this will continue for some time to come. But I wanted to focus on the motivations behind the decision. It is rare that a large central bank unveils a complete surprise – not just in the sense that it had not communicated the move but that there was no significant market pressure or indicators for a move.