Blog: You, us, everyone

Swiss National Bank unexpectedly gives up exchange rate cap on the Swiss Franc the day after these figures come out! Is there any more in the pipeline? There must be a reason for the SNB to dropp the peg. Whad do they know we don’t know yet. Is it QE4 or that Mr. Draghi has decided to enter the currency war and fuel European Growth via a lower €.

The magnitude of the appreciation of CHF is likely to have exceeded the SNB’s expectations as USD/CHF tested its historical low before the introduction of the exchange rate floor. At its current level CHF is now significantly overvalued against both EUR and USD (fair value would put EUR/CHF at least above 1.25 to around 1.32, where for USD/CHF it is around 1.15). This time round, we would not expect the SNB to adjust further its policy, unless the objective is to create mistrust and a total break of confidence.

As an investor, if you haven’t done anything yet, you might want to wait for the “dust to settle”. Negative rates in CHF and revised earnings for Swiss stocks should mean that the market will adjust. A move back towards 1.10 on the CHF/EUR and 0.95 on the USD/CHF seems reasonable, if anything to mitigate somewhat the impact for the Swiss economy.