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16 Jan 2015
SNB decision: Impact on global risk appetite – DB
FXStreet (Barcelona) - The Deutsche Bank Team notes that the SNB’s decision to remove its EUR/CHF would have a negative impact on global risk appetite.
Key Quotes
“To our minds, the negative impact on risk appetite is one of the most important side-effects of this decision. First, the policy move marks a meaningful negative in terms of policy credibility: up until a few days ago the SNB had the "utmost determination" to defend a currency floor, which has now been fully reversed.”
“We find the SNB's rationalization of the decision based on a strengthening USD/CHF over the last few weeks hard to justify: the policy move has immediately led to a large tightening in Swiss financial conditions - the CHF trade-weighted is at new record highs and the domestic stock market has dropped by more than 10%.”
“Ultimately then, the decision has effectively demonstrated a reduced willingness by the SNB to defend its inflation mandate, and the highly disruptive experience likely reduces the odds of other peripheral European central banks following suit in terms of currency floors (so marginally bullish their currencies).”
Key Quotes
“To our minds, the negative impact on risk appetite is one of the most important side-effects of this decision. First, the policy move marks a meaningful negative in terms of policy credibility: up until a few days ago the SNB had the "utmost determination" to defend a currency floor, which has now been fully reversed.”
“We find the SNB's rationalization of the decision based on a strengthening USD/CHF over the last few weeks hard to justify: the policy move has immediately led to a large tightening in Swiss financial conditions - the CHF trade-weighted is at new record highs and the domestic stock market has dropped by more than 10%.”
“Ultimately then, the decision has effectively demonstrated a reduced willingness by the SNB to defend its inflation mandate, and the highly disruptive experience likely reduces the odds of other peripheral European central banks following suit in terms of currency floors (so marginally bullish their currencies).”