SNB (Swiss National Bank) Pegging-Unpegging

The SNB decided to peg the CHF to the Euro at a rate of 1.2000 on 9th August 2011.
3 years later it decided to un-peg the EURCHF rate of 1.2000 on 15th Jan 2015.

The strange thing is that just on 14th Mr. Thomas Jordan the Governor of the SNB said that they would continue the peg. In 24 hours however his opinion changed and the peg was done away with.

Impact of SNB action

·         Tourism industry gets affected as CHF becomes very strong and hence makes everything in Switzerland more expensive.

·         Swiss Export Industry hit badly.

·         Many brokerage houses suffered huge losses, like Alpari UK, Excel Brokers Newzealand and also FXCM suffered huge losses.

·         Many brokerage houses stopped trading the Franc due to excessive volatility.

·         The Swiss benchmark Stock Index fell 10%.

Thomas Jordan’s argument:

"The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the U.S. dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified," the statement said.

"While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate."

The central bank also cut its main interest rate to -0.75 percent—a move further into negative territory.

"The SNB is lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions," it added.

________________________________________________________________________________

It was becoming increasingly difficult for the SNB to defend the rate and in addition the SNB felt that the ECB was going to launch a bond buying program which would put further pressure on the SNB and make it impossible for it to defend the rate. 

I expect EURCHF and USDCHF to hit its lows once again sometimes in the next 2 to 4 months. After that i expect it to reverse to more comfortable levels. 

The charts below make it more clear what happened that day: