In a sudden move, SNB abandons its EUR/CHF floor – ING

FXStreet (Barcelona) - Julien Manceaux of ING, notes than in its second surprise move in less than one month, the Swiss National Bank changed its strategy this morning and abandoned its floor at 1.20 under the EUR/CHF exchange rate.

Key Quotes

“If we expected that the SNB would refrain from intervening on the FX market to the extent it did in the past (in two waves of 170 Bn CHF and 150 Bn CHF), an end to the purchase program was not expected. To avoid an appreciation of the CHF, the SNB however decided to bring interest rates further into negative territory.”

“Its target for the CHF 3m Libor has been reduced this morning by 50bp, from -0.75/+0.25 to -1.25/-0.25. The 3m Libor in CHF was already below -10bp since last week.”

“Today’s decision will bring it further down, meaning that within a few days investors will have to pay around 80bp to keep CHF during 3 months. This move therefore ensures that the appetite for the CHF as a safe-haven will remain limited, avoiding a negative shock for the Swiss economy. This should work at least in the near term as the Libor spreads between EUR and CHF rates will jump following the announcement.”

“Whether, this will still be the case after ECB’s meeting on 22nd January and a likely quantitative easing announcement remains to be seen.”