Swiss National Bank
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank have announced a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements. These central banks have agreed to lower the pricing on the […]
Six central banks, along with the Bank for International Settlements (BIS), have created a group to assess the potential use cases for a central bank digital currency (CBDC) in their home jurisdictions. The central banks involved in the group are: the Bank of England (BoE), the Bank of Japan (BoJ), the European Central Bank (ECB), […]
Lizzy Birmingham provides a brief roundup of the major FX moves this week, and the drivers behind each. 1) SNB Upholds Ultra-Loose Policy The Swiss franc was up 0.2% to 1.12127 per euro on Thursday following Swiss National Bank (SNB) president, Thomas Jordan’s, announcement to maintain loose monetary policy. In an interview with Bloomberg, Jordan […]
Lizzy Birmingham provides a brief roundup of the major FX moves this week, and the drivers behind each. 1) Euro Climbs Following Draghi’s Rate Hike Delay On Thursday, the euro climbed 0.6%, reaching a seven-week high of $1.1290 against the USD. This increase in value came following ECB President Mario Draghi’s announcement that the ECB […]
In football parlance it’s a tap in for Galen Stops and Colin Lambert in this week’s podcast as they have more academic-research-that-states-the-obvious to poke fun at. Listen in as they discuss last week’s report on the Swiss National Bank debacle in 2015 as well as the FX market’s handling of the Brexit vote. They also take a look at the potential impact of last week’s HSBC announcement that it had settled FX trades using distributed ledger technology, as well as the mysterious disappearance from marketing material of two asset classes at a recent platform media day.
A new working paper from the Bank of England analyses the role of automated trading (AT) in FX markets in a period containing the 15 January 2015 announcement by the Swiss National Bank that it had removed its EUR/CHF floor and finds that while AT “generated uninformed volatility”, human traders did the opposite.
“This ‘Swiss franc event’ represents a natural experiment as one of the largest shocks to the FX market in recent years and probably the most significant ‘black swan’ event in the period in which AT has been a prominent force in FX markets,” the paper states.
Given how the EUR/CHF cross collapsed immediately following the removal of the pair’s artificial floor by the Swiss National Bank (SNB) in January 2015, it would seem an obvious answer to the question, “was the event expected” would be “no”. The cross fell from its SNB-imposed floor at 1.2000, hitting 0.7000 at one stage before the “official” low was set at 0.85, finally settling around 1.05.
A new paper published by the Bank for International Settlements (BIS), however, studies events in the FX market leading up to the removal of the EUR/CHF floor in January 2015, and while it is not conclusive, it does find evidence that some option markets were predicted the break lower in the cross.
The Swiss National Bank continued to intervene in foreign exchange markets in 2016 with the intention of averting Swiss franc strength.
According to the central bank’s latest annual report, it bought a total of CHF 67.1 billion in foreign currency, from CHF 86.1 billion in 2015. The latter included intervention in the two weeks ahead of the central bank removing the EUR/CHF floor on January 15, 2015.
The SNB’s reported a profit of CHF 24.5 billion in 2016, following a loss of CHF 23.3 billion in the previous year.
