Swiss National Bank shocks markets by removing currency ‘ceiling’

The Swiss National Bank shocked investors this morning by abandoning its currency ceiling against the euro, and dropping interest rates to -0.75%.

The immediate reaction was explosive, as the EUR/CHF and the USD/CHF shed 25% of their value after 4 years of the SNB maintaining a minimum exchange rate.

As oil puts distance between itself and its ominous dip to just above $45 per barrel, with Brent Crude now up to around $48.5, and copper seeing a slight recovery from yesterday’s 6 year lows, this news was enough for the FTSE to put its commodity-based worries aside for now and open positively. However, the SNB’s interest rate and currency ‘ceiling’ announcement caused the FTSE to immediately shed its gains as shock rippled through the markets.

By the end of trading yesterday afternoon the European indices managed to squeak to a positive close, as it detached from the bearish sentiment that had plagued the markets on the back of its QE hopes. These gains continued into Thursday morning, despite Spain falling further into deflation, as it looks almost certain that some kind of quantitative easing measurements will be announced next week. Yet like the rest of the markets, the Eurozone indices were stunned by the SNB decision to slash rates and remove currency restrictions, and the region quickly switched to losses across the board.

This is just the latest wave of instability arising from Europe, and increases the pressure on the ECB next week. With such QE certainty is the fear of disappointment, leaving ECB President Draghi in the unenviable position of having to satisfy a region that is ready to bite his hand off in regards economic stimulus.

The US markets suffered again on Wednesday, as a weak Christmas period made itself felt on the country’s retail sales figures, leading the Dow to its fourth consecutive day of losses. This afternoon sees a flurry of figures, including PPI and unemployment claims. Both of these figures are forecast to go in the wrong direction, with the PPI data especially reflecting the struggles the USA is having with the wallets of its average citizens. To put it simply, Americans aren’t seeing the benefits of any US recovery, and it is having a significant impact on the Federal Reserve’s hopes of raising interest rates, something that looked certain to happen in 2015 following the Dow’s record run at the tail end of last year.