Swiss businesses are waking up to a new reality today after the value of the Swiss franc spiked by 30 percent in the last 24 hours. Companies are fearing a crash in its exports and a fall in tourism after its central bank unlinked the currency from the euro.
Speaking to Breakfast Business on Newstalk, chief market strategist with IG in London, Brenda Kelly discussed the decision - describing it as "one of the most ferocious moves" that she has ever seen in the currency market.
When asked about the effect that the move would have on the country's businesses, Ms Kelly labelled it "ridiculous", adding that companies will have to cut costs to remain competitive - and it is likely that some businesses will be tempted to move to other regions.
Graph mapping the value of the euro against the Swiss franc, via XE.com
It is expected that the country's watchmakers, and manufacturers of other luxury goods are set to be hit hardest by the measure. They face a new mismatch between the revenues that they can hope to take in from abroad, and expanding costs manufacturing in Switzerland.
"Words fail me," said Swatch's chief executive, Nick Hayek, he continued: "Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country."
The company is Switzerland's biggest watchmaker - its share price fell by 17 percent in the wake of the announcement - its biggest slump in more than 20 years.
Exports account for close to one third of Switzerland's GDP - they are led by pharmaceuticals, chemicals, precision instruments, electronics and clocks, watches and jewellery. The EU is its main trading partner.
Tourism is also a major industry - it accounts for 3 percent of the GDP - and employs five percent of the workforce.
The head of the International Monetary Fund (IMF), Christine Lagarde called the move "a bit of a surprise." It seems that the Swiss central bank had not consulted any of its international colleagues before announcing the decision.
Three years ago the Swiss central bank put in place a ceiling of 1.20 Swiss francs, per euro. This was to stop the currency’s appreciation. That ceiling was abandoned yesterday - a move that is seen as being a preemptive strike before the ECB launches a sovereign bond-buying programme. This could happen as soon as January 22nd, at the next meeting of the governing council of the ECB.
If the ECB announces a quantitative easing programme it will increase demand for safe haven currencies like the Swiss Franc - and it appears that the Swiss central bank did not believe that it would be able to defend its self-imposed ceiling if that happened.
