Swiss Franc Plunges By 600 Pips On Peg Speculation; Will It Succeed?

Tyler Durden's picture

All those hoping that in the wilderness of fiat, the Swiss Franc would be to be a safe haven, are getting destroyed today, following speculation overnight that the SNB would implement a euro-swiss franc peg. The result: an unprecedented 600 pip plunge in the two key pairs, the EURCHF and USDCHF, since new overnight highs. The take home: for those seeing a safe haven from central banking stupidity, just go to where there is no counterparty: physical precious metals.

Will the peg work? Here is Citi's Stevem Englander explaning his outlook.

There is some early discussion today that the SNB might implement a formal peg of the CHF against the EUR that is meant to prevent CHF's  and CHF has responded by being the worst performing major so far today. The idea would be that the SNB would set the peg and undertake unlimited intervention to maintain it. Unlike the recent moves in money and swap markets this would involve direct buying of EUR, rather than intervention through swaps and money markets. The question is whether the policy should be expected to succeed. In the past the ability of such commitments to work has been determined by investor perceptions of the ability of policymakers to stay the course with respect to such a peg.  In the famous case of the ERM, investors sensed that policymakers could not live with the interest rates that were needed to maintain the beg, given that the underlying fundamentals were out of line. On the surface it is easy to argue that unlimited intervention selling your currency is much easier than the trying to do unlimited intervention buying it. The other side of the argument is that if the concerns about the euro zone do not dissipate, investors may be very happy to make the trade, especially if they set the EURCHF peg at or above current spot. If the amount of buying needed was large relative to the size of the Swiss financial system and economy, investors may lose confidence that they will have the stomach to maintain the pace of buying and take the risk. The Danish peg, which is the most successful in modern times, has had a history of willingness to absorb pain in order to maintain the peg, whereas investors will be far more uncertain about how committed the SNB, given that the peg is tactical rather than structural.

Bottom line: yet another last ditch attempt to intervene by a desperate central bank. It will fail as all others have.

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Clueless Economist's picture

I am an attractive female who just got my associate dgree in Economics from ITT Tech.  I very much want to be an on air personality on CNBC.  I am a very good cheerleader for the stock market.  To be sure I get the job which of the following should I sleep with?  Steve Liesman, Jim Cramer, Joe Kernan, Larry Kudlow or Rick Santelli?

Dr. Engali's picture

Becky Quick. Oh wait she is Warren's ho.


Pladizow's picture

There is NO more Switzerland in the classic sense.

To join the IMF their currency could not be backed by gold - so in 2000 they obliged.

Expect nothing but more stupidity!

espirit's picture

Doesn't matter which one... the top layer of skin will have to come off, if it does wash off.

falak pema's picture

The Swiss only want one thing : that their money does not become a punching bag in the world currency war game. They have a REAL economy and jobs to protect; they are not all mad hedge funders, expression of current madness of the dregs of the earth.

Pladizow's picture

If that were the case, their currency would still be backed by gold!

falak pema's picture

The rush to gold is an archaic knee jerk that is justifed as financialised capitalism, à la amerikan, dies before our eyes, and takes down with it all who beieved in it: ie; the three pillars of west economies.

So don't blame the Swiss for not having a gold backing, they got caught up in this shit storm like all the others. Now they have to broaden their money base as the ISSUE today will become LACK OF LIQUIDITY in the banking sector.

The de facto gold standard base today is very narrow. There is not enough gold around to stop the fiat ponzi from killing the real economy. Gold hoarding just takes money out of the real economy and puts it into temporary deep freeze. The Swiss have to make a living and sell their stuff. So they buy into the Euro stability ponzi along with the others. Its a race to the bottom with NO winners...

This whole scam is a PRIVATE BANK SECTOR SCAM FROM DAY ONE. The sovereign debt has arisen to save the private sector oiligarchs from going down and they are still doing it. Its cause and effect. But the root cause is the private sector madness.

Stares straight ahead's picture

Other than Falak, the comments above are not accurate.  The swiss want their currency weakened to protect exporters.  This strategy is working so far. 

Lesson learned? :  do not try to store value in a currency in the middle of a currency war.

malek's picture

Other than your's and falak's comment, the above are accurate.

Yes, the Swiss exporters are getting hurt. And yes, Switzerland is now trying to devalue their currency to stop that (one has to love the euphemism "broaden their money base".)
But unless the SNB will buy up nearly infinite amounts of EUR and therefore eat tons of losses when their intervention stops/fails, it's not going to work.

And to believe that Switzerland is going to quasi-permanently peg to the EUR is laughable.

Next step, which by the way will work a lot better for the Swiss, is capital controls for foreigners.

Stares straight ahead's picture

Actually, all of the comments above are only partially correct.

My point was that gold is a safer bet than currencies in a currency war. And I said the swiss strategy was working so far, but I don't think it is sustainable.  And as Milton said, the Euro is doomed from its inception.

malek's picture

Then we are in agreement! <hat tip>

trav7777's picture

Buying gold doesn't take money out of the economy, dude.  It transfers the money from one holder of gold to the other.

CBs don't redeem paper money for gold any longer.

trav7777's picture

well, it's also a matter of that the rest of the currencies can't have everyone flocking to CHF and making life hard for them.  This is why FDR banned gold, because people were stampeding out of FRNs.  On the flipside, the desire for safe haven is making life expensive for any exporter

Stoploss's picture

You will have to pull a train.

hunglow's picture

Throw another log in the fire. 

slaughterer's picture

Steve Liesman (please no, anyway he is into bald economics Professors from Princeton)

Jim Cramer (nah, all used up, can't get it up)

Joe Kernan (represents a different type of challenge)

Larry Kudlow (too effete, no need to sleep with him, just give him a good bottle of wine and a back rub)

Rick Santelli (yes, why not, just do not mention the Tea Party, and ignore the fact that he speaks like David Lee Roth but looks like the neighborhood Italian pastry chef) 

DonnieD's picture

Application Denied. Attractice females need not apply. Try ESPN

ToNYC's picture


Go to the NJ studio after Jokernon gets off. Bring his daughter's book looking for an autograph wearing a tight red MCC sweater and a Right attitude about corporate fealty.

MolotovCockhead's picture

You are really clueless ain't you? Those that you mentioned are all small fries! If you are aiming to go all the way up to the top of a corporate ladder, you should open yourself to names like Rothschild, Warburg, Rockefeller, Astors, DuPonts, Guggenheims, Vanderbilts............Aim higher, don't lower your standard!

falak pema's picture

Try DSK, although not a media baron, he is big news and somewhat a lonesome cowboy these days. It would do your reputation of clueless hotty a lot of good if you survived a one night stand by his side. You'd get a AAA+ rating from S&P for being a rising star with a jet booster from a rooster in a place where it counts most; if you don't want to end up as toast in the sheeple crowd; without a PM hoard  to show for your name, but thanks to your PHD degree in no holds barred, naked uneconomic play. 

FeralSerf's picture

I recommend you sleep with me.  I can do you as much good as Liesman, Kudlow or Cramer.

You wouldn't get much sleep with Cramer or Kudlow unless you brought some serious ear plugs with you.

TruthInSunshine's picture

He's a male.

Clueless Economist is hilarious and used to have Paul Krugman's photo as his avatar.

I wish he'd return to the old avatar because it was more consistent with his actually very funny sarc-baiting of Krugmanites & Keynesians.

Pladizow's picture

There is NO more Switzerland in the classic sense.

They will do what ever the IMF tells them.

To be a part of the IMF their currency could not be backed by gold, so stupidly in 2000 they removed the gold backing.

Expect nothing but more stupidity.

Spitzer's picture

I don't think the IMF is happy that the Swiss are pegging to the Euro.

legal eagle's picture

Does anyone remember "property rights"? I have a sizable payment due me in CHF September 9th, the SNB just fooked me out of thousands in USD. Everywhere you turn there is no free markets and property is stolen as a matter of gubermint policy, ugh. I think I will leave it in CHF and see how long this intervention lasts.

the tower's picture

Those CHFs are not your property, so the Swiss can do what they want with them.

Your failure to arrange your payments in US$ is your fault, not theirs.

IQ 145's picture

The CHF/USD pair dropped sharply because the price went up sharply first; looking at the chart reveals that a kind of panic into the CHF took place; this made the trade pair attractive to professionals as a short. (The risk reward was better on the CHF/USD than the CHF/EUR). The "news" had nothing to do with it. This is shocking ignorance. If you just read the chart you could make money by taking advantage of the temporary foolishness expressed in the price behaviour. If you never read the news at all; which would be an excellent advice; the result would be exactly the same. The whole concept of a "Peg"; is childish nonsense. it's a waste of time to even discuss such a thing.

Stoploss's picture

Im shocked it took this long. EUR/CHF parity was about to be real by tomorrow. Now you know why the margin hike for gold.

Tyler Durden's picture

CHF margins were also hiked.

Stoploss's picture

I believe this is an attempt to save the EURO, since the swissie is pegged to gold, this must be an end run to stabilize euro without going full gold peg. That means gold is undervalued by just a smidge.

Paralympic Equity's picture

CHF is not pegged to gold, for a long time now...

Stoploss's picture

After Bretton Woods they 'adopted' an exchange rate. It was and always will be, stated against gold. Why in the world would it not move in lockstep with gold?

Spitzer's picture

No, its the Euro that is floated against gold. The Franc is not pegged or floated to gold. It will be after the peg though.

As if the Swiss are trying to save the Euro out of the goodness of their heart.

Sudden Debt's picture

Yes, the Swiss never really liked it when foreigners dumped their money into their banks....



Spitzer's picture

yeah right. Who wants money.....

Sudden Debt's picture

the age old dillema he:

Money > <industry

Ratscam's picture

correction will be short lived since a peg would have to be politically agreedto and that takes weeks in CH.
come on a 6% move in a currency in 1 day, just sick and not sustainable

william shatner's picture

That's where you are wrong. The Swiss Franc is no longer pegged to gold since 2000. It has become a fiat currency like all the others.


DosZap's picture


The Swissie is no longer pegged to Gold............that went bye bye a while back.(Idiots)

They wish it were, and they had not like most CB's in thise days, dumped the reserves neccessary to back their currency w/Gold.

If it were backed by Gold, the WORLD would have already beat their doors completely down.

slaughterer's picture

How much is it going to cost that minimum wage earner from Minnesota for a Big Mac in Zurich today?

Long-John-Silver's picture

It will always be worth 7 90% Silver dimes with a few copper pennies back in change.

the tower's picture

there are no minimum wage earners from Minnesota in Zürich so who cares

TruthInSunshine's picture

The Swiss are trying to save whatever will remain of their exporters.

Does anyone buy Swiss watches anymore?

Does anyone wear watches???

What about chocolates (eating them, not wearing them)?

I think this will work, if lowering the exchange rate of the CHF is the goal.

Whether it's a good idea or bad idea, maybe Paul Krugman or another "government should interfere with markets at every opportunity, especially when externalities create comparative disadvantages" type economist can tell us the answer.

After which, they can explain to us what happened to Japan or what's soon to happen to China (or Amerkranski, for that matter).

The problem with the academics is that they so vastly fail to appreciate the laws of unintended consequences.

Markets are not a temperapedic mattress where you can jump up and down on them like a rabid Gorilla, while not waking your spouse up, let alone not knocking over the glass of red wine someone placed on top of the mattress.