After the Swiss National Bank (SNB) made a surprise move to sever its ties with the Euro by removing its 1.20 floor, exchange rates saw extreme volatility. The consequences of such a move are still being felt by many investors, but the detriment to huge businesses has seen devastating outcomes.
SNB Floor Removal Shocks Foreign Exchange Markets, Franc (CHF) Surges, Euro (EUR) Falls
On Thursday of last week, the SNB shocked the world after removing its Euro cap despite previously arguing that it would do everything to maintain it. The effect on the foreign exchange market was instantaneous, with investors losing millions in a short space of time.
‘The Swiss National Bank (SNB) is discontinuing the minimum exchange rate of CHF 1.20 per Euro,’ the central bank said in a surprise statement.
‘A lot of investors got burned so now they’re closing some positions that they were having some profits – we’re seeing that in Canada, in Aussie, in Kiwi,’ said Charles St-Arnaud, London-based senior economist at Nomura Securities International Inc. ‘Most investors are taking a step back to reassess their willingness to take risks now. That’s why you see very little liquidity in the market.‘
‘Thursday’s massive appreciation of the Franc will have hurt these trades badly,’ the bank said in a report. ‘We may see depreciation pressure on higher yielding currencies and appreciation pressure on the other funders, including the EUR and JPY, as these carry structures are unwound in the days ahead.’
Alpari Moves into Insolvency: Will West Ham Black Out their Logo?
One of the many businesses to move into insolvency as a result of the cap removal was Alpari, a UK-based currency broker. This high-profile business applied for insolvency after the SNB’s shocking move. As the shirt-sponsor for Westham football club, the Alpari group have probably seen the most publicity from the fallout.
‘The board of directors are urgently considering all options including a sale,’ Alpari said in a statement over the weekend.
However, Westham fans need not worry about their club finances. ‘The Board would like to reassure supporters that Alpari (UK) Limited’s situation will have no impact on West Ham United. The Club remains in a strong financial position and just last month published accounts showing record revenues and a group profit of £10.3million before tax.’
As the club searches for a new sponsor, there is the possibility that the club will have to black out the Alpari logo until a new contract is finalised. ‘The Club has received huge interest and is already in advanced discussions with potential new shirt sponsors for next year.’
In the aftermath of the decision, the Swiss Franc to Euro (CHF/EUR) exchange rate softened below parity.