Swiss Franc Collapses as Central Bank Announces Pseudo-Peg

Another day, and another historical event: today the Swiss Central Bank announced they will put a ceiling  above the EUR/CHF against the Euro, at the maximum rate of 1.2 CHF per EUR.

(Bloomberg) — The Swiss central bank imposed a ceiling on the franc’s exchange rate for the first time in more than three decades and pledged to defend the target with the “utmost determination.” 

The Swiss National Bank is “aiming for a substantial and sustained weakening of the franc,” the Zurich-based bank said in an e-mailed statement today. “With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.”

The market's reaction was brutal and immediate: about 10% drop for the CHF of probably historical proportions for yet another historical move. See for yourself:

The kinds of move are big enough to make speculators billionaires, or to wipe them out. It also means they are very unwelcome and shows again the destructive power of Central Bankers — they cannot create wealth, but they can destroy it through inflation.

Interestingly, gold made a new all time high at around $1,920 but couldn't sustain it and dropped back to below $1,890.

My forecast so far seems to have been accurate (or lucky, or maybe more realistically a bit of both!) and it might be time to initiate a short position. I'll make a post when I do so, as I haven't made my mind yet.