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HUGE NEWS for investors! Why Swiss News Rocked the Economy

January 17, 2015

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The biggest FX shocker in years. A rise of 30% by the Swiss Franc, one of the world’s most important safe haven currencies. Three years ago the Swiss central bank put in place a ceiling of 1.20 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 program 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.

What does it mean for investors? In the short term, volatility; in the longer term, the Swiss franc-euro pair will presumably settle.  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.

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One Reply to “HUGE NEWS for investors! Why Swiss News Rocked the Economy”

  1. Steve Huang says:

    Definitely a shocker. At least 1 hedge fund manager was caught off guard:

    http://www.reuters.com/article/2015/01/17/us-swiss-snb-everest-idUSKBN0KQ0N920150117

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