Article / 15 January 2015 at 11:25 GMT

Jakobsen: SNB move is rationality itself

Chief Economist & CIO / Saxo Bank
Denmark
  • The SNB's move will come to be seen as rational
  • Letting market decide FX levels leads to growth and prosperity
  • EURCHF should end up trading around 1.000/1.0500

By Steen Jakobsen

Travelling in Switzerland, I was as surprised as anybody by getting the call that the Swiss National Bank has removed the floor in EURCHF, this despite my earlier research piece outlining that bigger risk but not an actual removal this swiftly.

The SNB has clearly weighted the pro and cons of the floor and decided the negatives were bigger than the advantages. In the medium term and long term this will be seen as not only rational but also as the protection of long-term Swiss growth and inflation expectations. The SNB is effectively acknowledging that the business cycle needs to run its course, the artificial weak CHF had the indirect consequence of inflating an already strong real estate market and placing Swiss monetary policy at the door of ECB.

This is now neutralised and Switzerland sends a strong signal to a country like Japan that the way forward to growth and long-term prosperity is via allowing the market to dictate the currency rate. Switzerland has dealt with a stronger CHF through innovation, productivity and an extensive “Mittelstand” – SME sector. 

Japan's "solution" is through exporting its problem overseas. The SNB action is full of rationality and gives hope for the markets and Main Street as accepting the business cycle up- and downside is the only way to mean revert to a better place.

swiss
 The SNB's move will be a boon for small Swiss companies. Pic: iStock

I expect the EURCHF to trade around 1.000/1.0500 as fair value when all is said and done. The CHF is stronger because it is supported by a robust tax regime, an efficient and educated society and an SME sector which is constantly on the lookout for quality and education and is finally now again supported by an SNB which believes in the micro over macro by allowing the FX rate to be dictated by the market.

This does not hide the pain of the surprise for many investors and companies, but it will be a wake up call and a confirmation of our bias that 2015 is the beginning of more volatility.

– Edited by Clare MacCarthy

Steen Jakobsen is chief economist and CIO at Saxo Bank – the home of social trading

Click here to watch an interview with John J Hardy about CHF for Saxo TV

4y
Mickette Mickette
Hello Steen and first of all Good Year 2015 to you and all the "Saxos"!
What´s your take on the German DAX for the short term. Dealing with the heat?
4y
Master Flash Master Flash
As they say IN THE GOLDMAN SACHS
This sentence should make it clear many things !
The QE is REQUIRED !!
4y
DudetteUK DudetteUK
It seems that the DAX is on its way to 10330

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