The Swiss franc shock of 15 January 2015: when the SNB scrapped the 1.20 floor

On the morning of 15 January 2015, the Swiss National Bank (SNB) announced that it was discontinuing its minimum exchange rate of 1.20 francs per euro. The floor had been in place for more than three years, and the SNB had reaffirmed it only weeks earlier. Within minutes, the franc rose by roughly 30% against the euro at its peak before part of the move reversed.

Why the floor existed

The SNB introduced the minimum rate in September 2011, during what it described as a period of exceptional overvaluation of the franc. Investors were buying francs as a safe haven during the euro area debt crisis, and the strong currency threatened Swiss exporters and risked pushing prices down. To defend the floor, the SNB committed to buying foreign currency in unlimited quantities.

Why it was abandoned

The SNB said the divergence between the monetary policies of the major currency areas had increased significantly, and that the euro had weakened considerably against the US dollar, taking the franc down with it. It concluded that enforcing the minimum rate was no longer justified. A week later, on 22 January 2015, the European Central Bank announced a large expansion of its bond purchases.

To soften the impact, the SNB lowered the interest rate on sight deposit balances above an exemption threshold to −0.75%, effective 22 January, and moved its target range for three-month Libor to between −1.25% and −0.25%.

The damage in the market

Liquidity vanished as the announcement hit. Prices jumped in large gaps, and many stop-loss orders were filled far beyond their levels. Some retail clients ended up owing money to their brokers, several brokers took heavy losses, and UK broker Alpari went into insolvency.

Lessons that still apply

• A peg or floor can end without warning. Central banks rarely signal the end of a currency commitment in advance, because doing so would trigger the very move they want to avoid (currency intervention explained).
• Stops don't guarantee your exit price. In a gap, a stop becomes a market order at the next available price (where to place a stop-loss).
• Leverage turns gaps into debts. Rules later introduced in the EU, UK and Australia require negative balance protection on retail CFD accounts and cap retail leverage.
• Low volatility can hide risk. EUR/CHF spent long periods in a narrow range just above the floor, which encouraged large positions.

The franc's role as a haven is covered in safe-haven currencies; live prices are on the USD/CHF page.