Euro Exchange Rates Hammered as 'Reckless' Swiss Abandon EUR/CHF Floor, Shared Currency Crashes

The euro exchange rate complex (EUR) came under significant selling pressure as Swiss authorities free the Franc by abandoning their 1.20 floor.

The Swiss central bank has been defending the EUR/CHF floor in order to ensure the swiss economy is not priced out of global markets by a strong currency.

The announcement that the floor has been abandoned has been dramatic.

The EUR/CHF is 13% in the red at 1.0501. At one stage the exchange rate fell to 0.80.

The move has seen other major EUR pairs falter with the EUR/GBP and EUR/USD sharply lower.

“The Swiss National Bank shocked investors this morning by abandoning its currency ceiling against the euro, and dropping interest rates to -0.75%. The immediate reaction was explosive, as the EUR/CHF and the USD/CHF shed 25% of their value after 4 years of the SNB maintaining a minimum exchange rate,” says Connor Campbell at Spreader.

The decision came with little prior warning and according to Andy Scott, associate director of advisory services at HiFX, the move looked a bit reckless given the subsequent reaction in the markets.

Banks are reportedly struggling to quote as the price flew around wildly and pricing tools such as Reuters unable to keep up with the pace of the move.

“The SNB said that it felt they no longer need the cap as the franc was no longer as overvalued as it had been thanks to the cap existing,” points out Scott.

David Madden, Market Analyst at IG agrees that the move by Swiss authorities appears to be too sudden:

“The Swiss are known for their neutrality, but today’s move by the Swiss National Bank is far from neutral. The sudden abandonment of the floor by the Swiss central bank has sent the markets into a tailspin.”

Equity markets have been shaken out by the Swiss move, and dealers are seeking the safety of the US dollar.

“Markets are still struggling to puzzle out the full implications, but the sudden drop in equity markets as well in the FX sphere shows that the move caught everyone off guard,” says Madden.

The move will have implications for the ECB which is looking to lower the value of the euro even further by introducing quantitative easing:

“Inevitably the question of how this links to ECB QE is being raised - it might be too much to suggest the SNB know something we don't, but any significant move from the ECB would be bound to put pressure on the SNB and its monetary policy, and today's move may be an attempt to fortify the SNB's position ahead of Draghi's appearance next week,” says Madden.