Swiss National Bank (SNB) acts to depress its currency...

Yesterday the monetary authorities in Switzerland took dramatic action to halt the rising Swiss franc in the hope that such a move will help their exporters and head off a domestic recession. Put simply, the SNB said it would intervene aggressively in the foreign exchange markets in an attempt to get the exchange rate to their new target level of Sfr1.20 versus the euro. What will this mean in practice? The SNB is now committed to buy "unlimited" amounts of foreign currency and to sell the equivalent amount of Swiss francs. In recent months we have seen a massive overvaluation of the Swiss franc as investors have sought to invest in a "safe haven" currency at a time of of grave concerns about the eurozone sovereign debt crisis and the related turmoil on the financial markets. This has seen the Swiss franc rise to Sfr1.0075 against the euro. As a consequence it has become very hard for Swiss exporters to compete as the appreciation has made their products much more expensive in foreign currency terms. With the export sector so important to the Swiss economy this has led to a sharp domestic slowdown in economic activity. The impact of the SNB announcement was immediate with the euro rising over 8% against the Swiss franc. In the light of these moves within Switzerland there are now clear fears of a currency war developing with other Countries also seeking to devalue their own currencies. We live in interesting times!