SNB moves deeper into negative rates – BBH

FXStreet (Barcelona) - The Brown Brothers Harriman Team shares that the SNB in a sudden move lowered its 3-month LIBOR target to -0.25% -to -1.25% from the previous -0.25% to -0.75%, sending the EUR/CHF to experience a 30% fall from 1.20 to 0.85.

Key Quotes

“Seemingly out of the blue, the Swiss National Bank abandoned its cap in the Swiss franc (euro floor) and moved deeper into negative interest rates. This has seen the Swiss franc rocket higher against the euro and dollar. It sent the euro briefly below $1.1600.”

“The SNB lowered its 3-month LIBOR target to between -0.25% and -1.25%. The charge for sight deposits over the exemption threshold to -0.75%. Previously the LIBOR target range was -0.25% and -0.75%.”

“The euro collapsed from just above CHF1.20 to a little below CHF0.8520 before what looked like intervention brought it back above CHF1.05 in choppy conditions.”

“The marked appreciation of the franc has spurred sharp losses in the Swiss stock market (near 7% at the time of this note) and European bourses are off around 1.8%. Hungary has not completed its restructuring of CHF-denominated loans, and the SNB move has punished the forint.”

“It appears the SNB had grown increasingly concerned about cost of maintaining the cap on the franc. The European Court of Justice preliminary ruling yesterday removed potential barrier to an ECB's sovereign bond buying program. The SNB likely anticipated, as do many market participants, for the euro to come under more pressure going forward.”