Back
15 Jan 2015
SNB decision to cut EUR/CHF floor suprising – HSBC
FXStreet (Barcelona) - According to HSBC Bank, the SNB’s Decision to abandon EUR-CHF floor is very surprising given inflation is so far below target in Switzerland.
Key Quotes
“The SNB’s decision to abandon the floor and cut interest rates is surprising given inflation remains far below target, FX intervention had not been especially large lately, and the stronger CHF introduces more downside risks to inflation projections.”
“One explanation is that the prospect of QE by the ECB, possibly as early as at next week’s meeting, pointed to a need for far greater FX intervention to defend the EUR-CHF floor in the coming months. By removing the floor, the SNB is no longer compelled to intervene, a tactic which had become more politically contentious, as reflected in last year’s “gold referendum”. But it is questionable whether more deeply negative interest rates will be able to prevent monetary conditions tightening given the sharp rally in CHF.”
“The repercussions which are already evident in the sizeable swings across European asset classes will, of course, extend beyond Switzerland, not least to Hungary and the Czech Republic.”
“Today’s action also highlights that central banks will not always get their wishes when it comes to their currency, or be able to dictate FX fortunes without limit.”
Key Quotes
“The SNB’s decision to abandon the floor and cut interest rates is surprising given inflation remains far below target, FX intervention had not been especially large lately, and the stronger CHF introduces more downside risks to inflation projections.”
“One explanation is that the prospect of QE by the ECB, possibly as early as at next week’s meeting, pointed to a need for far greater FX intervention to defend the EUR-CHF floor in the coming months. By removing the floor, the SNB is no longer compelled to intervene, a tactic which had become more politically contentious, as reflected in last year’s “gold referendum”. But it is questionable whether more deeply negative interest rates will be able to prevent monetary conditions tightening given the sharp rally in CHF.”
“The repercussions which are already evident in the sizeable swings across European asset classes will, of course, extend beyond Switzerland, not least to Hungary and the Czech Republic.”
“Today’s action also highlights that central banks will not always get their wishes when it comes to their currency, or be able to dictate FX fortunes without limit.”