Swiss National Bank scraps exchange rate cap

In a surprise move the Swiss National Bank shocked the world today when it announced that it would stop managing the Swiss franc to an exchange rate of CHF 1.20 to 1.00 Euro. At the same time, it announced that it is lowering the interest rate on sight deposit account balances by 0.5 percentage points, to -0.75%. It is also moving its target range for 3 month Libor further into negative territory to between -1.25% and -0.25%.

This move has taken many by surprise. The CHF is currently trading at around CHF 1.05 to 1.00 EURO but had traded as high as CHF 0.85 to 1.00 Euro at one point, according to The Economist. In addition, the Swiss SMI share price index is down 8.8% for the day on fears that a stronger Swiss franc will hurt Swiss business and because foreign listed assets are worth fewer stronger francs. Many Swiss business leaders have reacted strongly to this unexpected move.