Why The Swiss Franc Shot Up 30% In A Morning

[Cebu_4_2]

Why The Swiss Franc Shot Up 30% In A Morning
Comment Now (http://www.forbes.com/sites/chriswright/2015/01/15/why-the-swiss-franc-shot-up-30-in-a-morning/#comment_reply) http://i.forbesimg.com/assets/img/loading_spinners/16px_on_transparent.gif

“This,” says James Stanton, head of foreign exchange at deVere Group, “is the biggest FX shocker in years.”

He is referring to the extraordinary climb of 30% by the Swiss Franc, one of the world’s most important safe haven currencies, against the euro this morning. At one stage, it was up 39% against both the euro and the dollar. Movements like this simply don’t happen in big, widely held currencies like the Swiss franc. So what happened?

The answer is simple. Three years ago the Swiss central bank put in place a ceiling of Sfr1.20 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 programme 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,” says Stanton. “It’s a once in a blue moon event and it has taken the currency markets by surprise.”

http://blogs-images.forbes.com/chriswright/files/2015/01/swiss_franc_notes.jpg

What does it mean for investors? In the short term, volatility; in the longer term, the Swiss franc-euro pair will presumably settle. Stanton believes it will do so at about 1:1. 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.

Indeed, for the moment, we leave the final word to Swatch and its chief executive, Nick Hayek, who released a statement this morning which captures the stunned mood of Swiss exporters. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.”

[Neuro]

This is huge! The Euro is a sinking ship, and when the Swiss Franc was bonded to this sinking ship like a flotation tank, three years ago, the ship was sinking a bit slower, but it took the Swiss with it. Now the ship goes down and the floatations tank goes up like a ball pressed down below the surface, expect turbulence and waves in financial markets. The end of the Euro (let's give it a couple of years)...

[JohnQPublic]

Euro at $1.16!

Europeans are probably buying gold and Swiss Francs by the fistful.

[Neuro]

I just read the article again. They expect the bonding to resume at 1:1 soon again. Interestingly Dollar and Euro is moving towards 1:1. I haven't looked recently, but isn't Canadian and Australian dollars around 1:1 also. Scandinavian Krone currencies are about 10:1. Japanese Yen 100:1. Could it be it is all coming together for a world currency. Excluding Russia and China and the third world...

[Uncle Salty]

The end of the Euro (let's give it a couple of years)...

The Euro is going nowhere. It may change its members, but it is here to stay.

[EE_]

Euro at $1.16!

Europeans are probably buying gold and Swiss Francs by the fistful.

The Swiss should be on a shopping spree too, buying Itallian/Spanish Villas, or German Cars.
Those Swiss watches just got a lot more expensive.

Still was a very smart move by the Swiss. They were about to get dumped on by a flood of debased Euros.
IMF Christine Lagarde is not happy she wasn't notified.

[singular_me]

“A central bank does not act in such a dramatic way very often,” says Stanton. “It’s a once in a blue moon event and it has taken the currency markets by surprise.”


Id bet insiders must be drinking champagne

[mick silver]

Excluding Russia and China and the third world... both of they country's will have something to say about this CALL WORLD WAR THREE

[JohnQPublic]

...IMF Christine Lagarde is not happy she wasn't notified.

She probably did not have time to dump her Euros for Francs before it happened...

[JohnQPublic]

Id bet insiders must be drinking champagne

...purchased at a great discount, I may add.

[EE_]

She probably did not have time to dump her Euros for Francs before it happened...

It's a safe bet something like that happened to a few people in high places.

[Sparky]

US dollar spikes back up to 9-year high, simultaneous with gold advance. Along with the Swiss Franc, these are now the remaining three pillars still standing.

[old steel]

With the USD so high y'all can buy more Chinese junk, good times all around!

[Neuro]

The Euro is going nowhere. It may change its members, but it is here to stay.
We'll have to see about that... I doubt it survives another round of PIIGS default... This time the German economy is depressed, they can't bear it this time...

[JohnQPublic]

Pound is pretty solid also.

[Ponce]

Well, I am not greedy........my Canadian dollars are up a little.......only thing is that Americans wont accept them.......in time they will for it.

V

[old steel]

Swiss ATM "Unable To Dispense Euros At The Moment"


http://www.zerohedge.com/news/2015-01-15/its-tsunami-swiss-franc-soars-most-ever-after-snb-abandons-eurchf-floor-macro-hedge-Lagarde: Swiss move was a bit of a surprise.

Lagarde: Swiss move was a bit of a surprise.

Lagarde: Hope we don't have currency wars.



(http://www.zerohedge.com/news/2015-01-15/its-tsunami-swiss-franc-soars-most-ever-after-snb-abandons-eurchf-floor-macro-hedge-)

[PatColo]

About That "Strong" Dollar (http://www.zerohedge.com/news/2015-01-16/about-strong-dollar)


http://www.zerohedge.com/sites/default/files/pictures/picture-5.jpg (http://www.zerohedge.com/users/tyler-durden)
Submitted by Tyler Durden (http://www.zerohedge.com/users/tyler-durden) on 01/16/2015 15:57 -0500



Bond (http://www.zerohedge.com/taxonomy_vtn/term/10414)
default (http://www.zerohedge.com/taxonomy_vtn/term/7)
ETC (http://www.zerohedge.com/taxonomy_vtn/term/10405)
Eurozone (http://www.zerohedge.com/taxonomy_vtn/term/12167)
Hong Kong (http://www.zerohedge.com/taxonomy_vtn/term/10856)
Institutional Investors (http://www.zerohedge.com/taxonomy_vtn/term/9345)
Japan (http://www.zerohedge.com/taxonomy_vtn/term/8436)
Monetary Policy (http://www.zerohedge.com/taxonomy_vtn/term/10014)
Swiss Franc (http://www.zerohedge.com/taxonomy_vtn/term/9230)
Swiss National Bank (http://www.zerohedge.com/taxonomy_vtn/term/12402)
Switzerland (http://www.zerohedge.com/taxonomy_vtn/term/9867)
Yen (http://www.zerohedge.com/taxonomy_vtn/term/10118)




Submitted by Simon Black via Sovereign Man blog (http://www.sovereignman.com/trends/about-that-strong-dollar-15956/),



I’ll admit that I wasn’t much of an athlete as a kid, at least in any traditional sport.

(I famously struck out a tee-ball when I was five years old, managing to hit the stationary tee three times in a row. I’m not sure this feat has ever been duplicated before or since.)

But my parents still enrolled me in all the local sports leagues ‘til about sixth or seventh grade– you know, the ones where they have to put your kid in the game as long as you pay the dues.

Fortunately (or rather unfortunately) they lumped all the sorry kids onto the same basketball squad. Strength in numbers— we all sucked together.

And, bearing in mind this was the 80s, our opponents wasted no time pulverizing us into dust, then rubbing our noses in defeat.

Every single game was like a bad Karate Kid sequel… except more guys in skeleton costumes without the climactic Crane Technique victory at the end.

Occasionally (by which I mean rarely), one of us would miraculously score a basket.

This was a momentous achievement for us, and one that would be wholeheartedly celebrated by the entire team.

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01/20150116_dollar.jpg (http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01/20150116_dollar.jpg)
And invariably there would be someone from the opposing team who would jog by and snarl some pithy 80s sports metaphor, my favorite being “Scoreboard.”



Now, if you’re not a native English speaker, “scoreboard” is an idiomatic expression generally employed by some gigantic douche-bag to remind people that he’s still winning.


It basically means, “Whatever you’re saying, doing, or arguing doesn’t matter, because we’re winning.”


I’ll use an example: “Yeah, the US has $18 trillion in debt and a central bank that’s nearly insolvent… but you know what? Scoreboard.”



The point being that the dollar is ‘strong’ right now relative to other currencies. A number of currencies from the euro to the Japanese yen, for example, are all near multi-year lows.


So, who cares about the dollar’s weak fundamentals because it’s so strong right now. Right?



It’s important to first understand that global capital flows are extremely fickle.


Central bankers around the world have conjured trillions of currency units– dollars, euros, yen, etc. And those currency units have to find a ‘home’ somewhere.


If you’re holding $10,000 or even $10 million, many people just stick it in a bank.


But if you’re sitting on hundreds of billions, you have to find a safe place to park it.


Traditionally (and absurdly), institutional investors favor government bonds as that ‘safe place’.


It used to be you could just park it in some western government bond and walk away for a nice dinner and a movie.



Not anymore. Now you have to be constantly worried and alert.



Because in an instant, the US government could shut down again. Japan could default on its prodigious debt (in excess of 200% of GDP). The eurozone could come apart.


Any number of things could happen.


And as a result, capital regularly shifts from one major currency to another based on the market’s assessment of risk, i.e. which one is the ‘least ugly’ right now.


At the moment, the US dollar is choice.


This isn’t necessarily a vote of confidence for the dollar. It’s more like a vote against all the others.


If big institutional investors must choose between bankrupt America and bankrupt Europe, right now they choose America.


But this is a decision that can and will be changed in an instant. Just look at the Swiss franc.


Since September 2011, the Swiss National Bank (SNB) had essentially put a ceiling on the appreciation of the Swiss franc with respect to the euro.


The franc had been rising for months. And I predicted in July 2011 that the SNB would intervene with some sort of controls.

They did, shocking the world with this statement on September 6, 2011:




“With immediate effect, [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”



Investors yanked their money and the franc dropped like a stone.


But a few days ago, the SNB reversed this control. They are now no longer limiting the rise of their currency.



And the franc soared 10% almost instantly– a HUGE move for a major currency.


Why did this happen? Because in a universe of options that only includes the dollar and euro, the dollar wins.


But if you expand that universe even a little bit to include the Swiss franc, suddenly the real truth comes out.


Investors have far more confidence in Switzerland than the United States. They’d rather hold francs.


The next one to watch is the Hong Kong dollar.



Right now the HK dollar is pegged to the US dollar. But I’ve said it before: there may likely come a day when the Hong Kong Monetary Authority stops importing US monetary policy and abandons this peg.



We’ll see the same immediate surge. And anyone holding HK dollars will have a lot to gain.


http://www.zerohedge.com/news/2015-01-16/about-strong-dollar