GBPEUR Jumped to the Best Rate for 7 Years

16 January, 2015

Tom Arnold

Wow. What a day that was. Yesterday saw some of the most dramatic movements on the currency markets for many years following the surprise announcement from the Swiss National Bank that they were ending their cap of the Swiss Franc’s value against the Euro. For the last 3 years the Franc has been capped at 1.20 against the Euro, and as such the Franc has tracked the Euro through its recent significant weakening, most notably against the US Dollar.

This ended yesterday and the markets reacted to the surprise move in quite an astonishing way. Within minutes the EURCHF rate dropped almost 30% as the Swiss Franc found significant strength that the cap had otherwise been restricting. Not many of our clients do EURCHF trades, but elsewhere the knock on effects were also felt strongly.

The markets took the surprise move to mean that the Swiss were untangling themselves from the Euro before the ECB “took steps” to try and bolster the European economy. The expectation is that in the coming weeks he ECB will start a programme of Quantitative Easing – this will dilute the Euro and almost certainly weaken it, albeit much of this is likely already priced in. The theory is the Swiss didn’t want the Franc to be dragged along on this ride and as such untied themselves now. So this was taken as the clearest indication to date of the likely Euro weakness and so the Euro bombed.

GBPEUR jumped to the best rate for 7 years, smashing the recent highs by a further two cents, and USDEUR moved to the best rate for 11 years, again moving a couple of cents past the recent highs.

A report on the BBC’s website said that the head of the IMF (International Monetary Fund) Christine Lagarde called the move “a bit of a surprise”, and this understatement almost certainly illustrates why some traders were describing the resultant hours as “carnage”.

Away from the trading floors and investment banks what this means for our clients is a massive opportunity. If you are buying Euros from anything, the rates are brilliant – multi year highs all round. Surprise decisions like this inevitably cause massive moves, but they are often quite short lived – the EURCHF rate for example has already corrected back over half of those initial loses… So now is a great opportunity to book your rate close to those highs and to take advantage before things settle down. Make sure you get in touch with your account manager at Currency Index to discuss your options – a forward contract could secure your rate now even if you don’t need the currency for months.