Before and after the Swiss franc or the black day story September 3, 2016 – Posted in: analyses, posts
Before and after the Swiss franc or the black day story
15th of January 2015 was the day when the Swiss franc strengthened. That day was already called the black Thursday. It was one of the black days in the history of the world markets. The rapid change in the exchange rates was caused by Swiss National Bank that announced the abandonment of defending the minimum exchange rate. This resulted in a panic over the markets and the sudden exchange rate change of individual currency pairs.
Franc was believed to be a “safe haven” currency that investors invested in their assets mainly in a period of turmoil. At that time the demand for Swiss currency rose. Finally, on 6th of 2011 Swiss National Bank (SNB) partly pegged the euro exchange rate yet ensuring the maximum exchange rate worth not lower than 1.2 francs. It entailed the intervention of Swiss National Bank at financial markets only when the Swiss franc was held at 1.2 to the euro. In subsequent years the euro exchange rate remained over 1.2 to the franc.
On 15th of 2015, SNB informed about discontinuing the policy of defending the minimum exchange rate. It was believed that maintaining of the fixed exchange rate was not necessary due to the depreciation of Euro (therefore, fixed franc) against US Dollar.
The markets responded immediately and rapidly. The decision of SNB was a great astonishment.
The liquidity gap approached 20% and it turned out to be the highest in the history. The quotations of individual currency pairs with the Swiss franc were withheld for many minutes. It resulted in price gaps that despite closing open currency positions caused losses to many members of forex.
The repercussions affected the global stock exchanges. A 12% decrease was registered in Switzerland. The strengthening of the Swiss franc is favourable to exporters and employees working there. However, it means a loss for Swiss importers.
In Poland, this situation temporally affected people who took a loan in the Swiss currency. However, many contracts, especially mortgage, contain provisions of joining the value of repayment of installments with interest rates in Switzerland. These interest rates were decreased what compensated the exchange rate increase.
Could SNB’s decision impact us in any other way? We shall find out…