LONDON: Switzerland's franc soared by 15 percent on Thursday after the Swiss National Bank abandoned its three-year-old cap against the euro, sending a shockwave through major currency markets.
The euro sank by as much as 30 percent, past the 1.20 francs per euro cap to 0.8052 francs within minutes of the SNB's announcement, and broader concerns about the shared currency sent it to its weakest in 11 years against the dollar.
One of London's slew of retail trading platforms, Forex.com, ceased briefly to quote the franc and the main venue for interbank trading of the Swiss currency, EBS, registered one mistrade at just 0.0015 francs per euro.
The moves in the franc were the biggest since most major currencies moved to free floating regimes in the 1970s.
"It is carnage, they've stopped defending the floor, I'm a seller of Europe here," said Darren Courtney-Cook, head of trading at Central Markets Investment Management.
Belgian and French bonds, seen as the main targets for SNB investments in the euro zone, underperformed their regional peers, with 10-year yields both rising 3 basis points.
The SNB has been resisting pressure for months on the cap it imposed on the franc when investors picked it as their haven from the euro zone's economic and political troubles.
The prospect of outright money-printing by the European Central Bank being introduced as early as next week has ratcheted up the pressure, with the SNB seen by market players as buying euros consistently around 1.2009 francs per euro in recent days.
The move still leaves the SNB with the same cocktail of policy difficulties to deal with. Like many economies in Europe, Switzerland is threatened by a debilitating cycle of falling prices and poor economic growth, which a strong franc worsens.
The bank concurrently cut interest rates deeper into negative territory on Thursday and its chairman, Thomas Jordan, told a news conference it would remain active in markets. Dealers were already speculating that the bank had intervened on Thursday to stabilise the euro-franc rate but Reuters was unable to confirm.
"You will have the SNB coming back into play, but maybe their intervention will be concentrated not only in euro terms but in dollar terms as well," said Hans Redeker, global head of FX strategy at Morgan Stanley in London.
Redeker said that might effectively add up to a dirty float, where the SNB would use intervention regularly to steer the exchange rate without revealing any formal targets.
"They will intervene but not linked to a cap," he said.
By 1220 GMT, the franc had trimmed its gains against the euro to trade at 1.02575 francs, up almost 15 percent on the day.
It also appreciated by almost a third against the dollar before settling 14 percent higher at 0.8779 francs per dollar.
"The SNB probably expects the ECB to launch QE next week and along with the Greek elections coming up, it would make it pretty tough on the Swiss to keep bidding the euro," said Jonathan Webb, head of FX strategy at Jefferies in London.
"So they have abandoned the cap and cut rates deeper into negative territory. We expect euro/Swiss to trade around 0.90-1.00 francs after all the stop loss orders have been cleared."
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