Global markets turned chaotic on Thursday when in a shock move, the Swiss National Bank (SNBN) scrapped its minimum exchange rate, abandoning a tool policy makers said just days ago was necessary to ward off deflation.
Switzerland discarded its more than three-year-old cap on the franc thereby sending the currency soaring and Europe's shares and bond yields tumbling.
The franc jumped by almost 30 percent in a frenzied few minutes after the 1.20 per euro cap in place since late 2011 was lifted, surging past parity to reportedly trade as high as 0.8052 francs per euro. It was trading at 1.02600 at just after 1200 GMT. Swiss stocks plunged.
Biggest Daily Drop in 26 Years
Over 100 billion francs ($98 billion) was wiped off the value of Swiss stocks, their biggest daily fall in 26 years, while the pan-European FTSEurofirst 300 slumped 2 percent and Wall Street futures turned negative.
This “deepens Switzerland’s experiment with unconventional monetary policy,” said Alex Dryden, global market strategist at JPMorgan Chase & Co. in London. “The SNB hopes that this will dissuade investors from viewing the Swiss franc as a safe haven and therefore avoid a negative shock for the Swiss economy.”
The change comes just one week before ECB policy makers meet to discuss introducing new stimulus, including quantitative easing, a move that may add to pressure on the franc against the euro. As a small, export-oriented economy with a big banking sector, Switzerland has repeatedly grappled with how to rein in a currency popular with investors at times of crisis.
As investors scrambled for traditional safe-haven assets, there were new record low yields for Germany's government bonds and gains for the yen and gold.