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 Sharply negative Swiss interest rates - three month rates are around
minus 0.75 percent - and subtle market interventions by the Swiss
National Bank have stabilized the franc at around 1.08 per euro.
Whether it lasts is an open question - there have been political and
economic costs - but the situation is nonetheless a far cry from
Jan. 15, 2015 when the cap's removal prompted the biggest currency
market swing since the 1970s.
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"Nobody who was involved in the franc on Jan. 15 will ever forget
that one, what the move was like," said Tim Mueller, a senior
foreign exchange trader at Zuercher Kantonalbank. "I've been doing
this for nearly 28 years and that was a unique move."
Global markets had complete confidence the SNB would stick to its
three-year-old pledge to keep the euro above 1.20 Swiss francs, a
tool it had described as the cornerstone of monetary policy as
recently as Jan. 12.
So when it published a brief statement in early European trading
hours bluntly saying it had lifted the cap, investors were caught
cold.
As the franc soared past parity against the euro, economists fretted
Switzerland's export-reliant economy would plunge into recession
while some foreign exchange brokers were pushed out of business.
A year later, the picture has brightened.
The SNB still describes the franc as "significantly overvalued" but
the currency is at a tolerable price for Swiss exporters to the euro
zone, Switzerland's biggest trading partner, and has not thrown the
country into an anticipated recession.
"The SNB looks to have regained control over the franc and a lot of
investors believe that," said Joachim Corbach, head of currencies
and commodities at asset manager GAM in Zurich.
Wariness about what the SNB could do next, along with the negative
rates, has deterred speculators and kept franc in a narrow range
since August.
Reflecting this, the share of the franc in daily spot deals in
London, the biggest trading center for currencies, has slipped,
according to the Bank of England.
Investors have instead plumped for more liquid currencies like the
Japanese yen, another safe-haven currency, and the dollar in the
latest bout of turmoil hitting global markets.
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FRANKENSCHOCK'S COST
The latest trends in the derivative markets indicate investors are
certain about the franc's stability in the coming weeks given
concerns about China and the pull of the franc as a safe haven.
"If things get nastier, then we could see them (investors) coming
into the franc, but at the current moment they seem to prefer the
U.S. dollar and the yen," Corbach said.
Meanwhile, the political and economic fallout from the cap's removal
still grips Switzerland and the SNB.
Unemployment hit 3.7 percent last month, the highest in nearly six
years, as Swiss companies that rely on selling goods abroad cut jobs
to save costs. Consumer prices have fallen every month in
year-on-year terms since November 2014.
The SNB posted a record 23 billion franc ($23 billion) loss last
year largely due to enormous losses on its foreign currency
positions.
It has also faced pressure from politicians and business leaders who
argue the SNB should do more to protect industry from the strong
franc and question the central bank's set-up.
But a year on, "Frankenshock" has not turned into "Frankageddon".
(Editing by Jeremy Gaunt)
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