Swiss minimum exchange rate abolished, sharp gain in CHF

The Swiss National Bank (SNB) is discontinuing its minimum exchange rate of CHF 1.2 per Euro. The Libor rate is in negative territory at -0.75%. Conventional wisdom via interest rate parity would dictate based on interest rates alone, the Swiss Franc would depreciate against major currencies. There is however a catch.

"The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US 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. " Previously CHF was pegged to the Euro.

Check out the movements of the CHF compared to other currencies.

As seen above, common pairs such as USD/CHF and EUR/CHF experienced sharp drops. To demonstrate how big this drop is, say a trader who went in short on one lot of USD/CHF at 1.0223 and closed out at 0.8759 would have made a gain of slightly over $14 000.

Huge drop in the USD/CHF chart.

 EUR/CHF chart to picture the CHF increase in strength.


The press release can be found here.