Swiss franc soars after central bank removes euro cap

The Swiss franc soared today (January 15th) after Switzerland's central bank said it is removing its cap on the currency's value against the euro, which stood at 1.20 Swiss francs (£0.90) to the euro. 

The Swiss currency rose above parity against the euro, gaining 33 per cent to €1.1170 (£0.86), but later recovered close to €1.05. It also jumped 31 per cent against the dollar.

The Swiss National Bank (SNB) adopted the currency cap in 2011 to protect the country's economy. "Enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified", it said in a statement, after the depreciation of the euro against the dollar caused the Swiss franc to weaken. 

Swiss shares fell some six per cent, with investors buying safer assets such as gold and German bonds. Swiss exporters' shares were the most hit, with watchmaker Swatch seeing its share price tumble 15 per cent.

Mark Haefele, chief investment officer of Swiss bank UBS, estimated that the move would cost Swiss exporters close to five billion Swiss francs, equivalent to 0.7 per cent of Swiss economic output, the BBC reports.

The SNB has been resisting pressure on the cap it imposed in September 2011 following the steep rise of the franc's value due to investors seeking a haven from the eurozone's economic and political troubles.

"It has taken the market by complete surprise," Jonathan Webb, head of FX strategy at Jefferies in London, told Reuters. "The SNB probably expects the ECB to launch QE next week and along with the Greek elections coming up, it would make it pretty tough on the Swiss to keep bidding the euro. So they have abandoned the cap and cut rates deeper into negative territory. We expect euro/Swiss to trade around 0.90-1.00 francs after all the stop loss orders have been cleared."

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