Currency markets were thrown into a frenzy today by a stunning move from the Swiss National Bank. With no hints or prior warnings, the SNB removed its long-standing cap on the franc-euro exchange rate.
For the last three and a half years, the franc had been capped at 1.20 francs per euro. The SNB has made tremendous efforts, buying euros, to maintain this peg.
The franc is seen as a safe-haven currency and demand for it typically rises during periods of global turmoil. However, overt strength in the franc can cause problems for the Swiss economy, which is primarily export dependent. As we know a strong currency makes a country's exports less competitive. Switzerland sells a significant portion of their exports to Europe, and thus a cap, protecting the franc from becoming too strong against the euro, had become a cornerstone of SNB policy since it was enacted during the Eurozone debt crisis. (During ... Log in or subscribe to continue reading.