Swiss franc surged to a record versus the euro as cash flooded into the nation
after the Swiss National Bank removed a cap on the currency that
had held back inflows for more than three years.
Switzerland's currency rose at least 15 percent against all of
its 16 major peers as the SNB said the 1.20-per-euro limit that
was in force since September 2011 was no longer justified.
According to Bloomberg, the franc climbed 17 percent to 1.0253 per euro at 2:43 p.m. London time, after touching 85.17 centimes, the strongest level on record. It rose 17 percent to 87.41 centimes per dollar.
Pressure on the cap increased in recent months as speculation
the European Central Bank was preparing a quantitative-easing
program of buying government bonds weakened the euro.
The SNB had imposed its limit on the exchange rate as an exodus from euro assets during the region’s debt crisis in 2011 strengthened the franc and raised the prospect of deflation. While defending the cap pushed up Switzerland’s foreign-exchange reserves, the limit was pierced only once, in April 2012. As well as removing the measure today, the SNB also said it will push the interest rate on sight deposits to minus 0.75 percent from minus 0.25 percent.
The SNB decision shook up markets around the world. U.S. 10-year Treasuries erased declines, pushing yields down as much as five basis points, or 0.05 percentage point, and the yield on German two-year notes dropped to a record minus 0.154 percent. The price of Euribor futures for some months this year rose above 100 for the first time, turning implied yields negative.
The Swiss Market Index of equities slid 10 percent, its biggest intraday drop since 1997, and Swatch Group AG, Switzerland’s biggest watchmaker, tumbled as much as 18 percent.
