SNB shocks markets by ending franc, euro coupling

In a move that shocked markets, the Swiss National Bank (SNB) has scrapped the defence of its currency and put an end to its three-year cap on the Swiss franc versus the euro. The surprise decision caught markets unawares and destroyed the little risk appetite that had gathered overnight from Asian equities, sending UK and European shares tumbling.

The FTSE 100 was down around 0.6 per cent by lunchtime, the DAX lost around 0.5 per cent and the Swiss Market Index plunged by 12 per cent in its largest fall since at least 1988.

A surge in Japanese exports lifted stocks in Asia overnight, to record their biggest gains in seven weeks. The positive sentiment was further boosted on an impressive rebound in commodity and oil prices, after yesterday’s rout saw copper falling to a five-year low.

Japan’s Nikkei ended higher by a little over 1.8 per cent, the Hang Seng was up nearly one per cent and the Sensex added almost 2.7 per cent.

However, risk aversion rose and dollar demand dipped again after the SNB scrapped its currency’s coupling to the euro, causing the Swiss franc to soar nearly 30 per cent versus the euro, breaking parity and hitting record highs.

The flight to safety sparked a rush for gold, which has reclaimed three-month highs, while the yen again took the fight to the dollar and re-established its five-day consecutive winning streak.

A significant rebound was seen in the price of oil, which soared around six per cent higher overnight. However, despite a continuing bounce in copper and other metals, oil returned to its trend of late, that has seen the black gold plunge over 50 per cent since June 2014.

US data came in weaker than expected yesterday, when retail sales recorded their largest decline in 11 months in December, falling on slack demand and dampening expectations of strong consumer spending in the final quarter of 2014. The US economic recovery continues to come under fire from mixed data, especially as consumer demand waned despite a huge reduction in the price of oil.