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Swiss decision rocks markets

Published Friday, January 16th, 2015

An eventful session saw asset classes across the board see-saw wildly yesterday after the Swiss National Bank surprised markets by scrapping its exchange-rate ceiling against the euro. The Swiss franc was allowed to appreciate below the 1.20 cap which had been in place since September 2011 and initially surged by almost 30% before settling 16% higher against the shared-currency at close to parity. The move by the Swiss central bank was seen by many as an attempt to shield the franc from a further weakening of the euro as a result of the expected move by the ECB to undertake a programme of government bond purchases.

The fall out saw European stock indices recovering from early losses to settle considerably higher on growing hopes of ECB action. Sentiment across the currency-bloc was also lifted by official figures revealing that the German economy grew by 1.5% in 2014, its strongest rate in three years and a significant improvement over the 0.1% recorded in the previous year. Moreover, investors were cheered by figures highlighting a modest increase in the zone’s trade surplus in November as a result of a seasonally adjusted 0.2% rise in exports. Haven assets also saw notable gains as investors sought refuge from the extreme volatility that had taken hold of foreign exchange markets with gold jumping 2% and German benchmark borrowing costs falling to a fresh record low. However, any further upside to the region’s risk assets may be limited after an overnight incident in which two suspected Islamist militants were killed in an exchange of fire with Belgian police following several anti-terror raids.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.