In hindsight, were there clues the SNB would remove the peg
Adam published a post reporting that SNB chairman Jordan said the market reaction had gone too far but that the SNB were aware the move could have a major impact
We were aware that this decision could have major effects on the markets. They are also marked by great uncertainty due to the change in monetary policy of the SNB. This results in greater volatility and markets are gradually finding their balance, which will take time. We observe significant excess in current prices
So he knew it would cause a major impact but not one to this degree, which raises the question again of whether the decision was fully thought through and indeed what counsel they took on its impact/fall-out
I’ve looked at the interview in Le Temps which doesn’t really answer any of the questions I raised in my piece yesterday asking whether Jordan really knew what he was unleashing in Thursday’s action. The post has attracted some valid comments/answers for both sides of the discussion but many issues still remain
In the Le Temps interview Jordan is asked whether his vice chairman Danthine knew of the changes looming when he gave an interview to RTS on the 13 Jan which I covered here. In it Danthine reiterated that the EURCHF floor of 1.2000 was the pillar of monetary policy but when asked whether the introduction of QE by the ECB would make the defence of 1.2000 more difficult he replied
It’s very possible
My thought at the time was that with EURCHF hovering at 1.2009 they have a “battle on their hands still” but I wasn’t thinking that they’d withdraw it completely.
But, in retrospect, given that Danthine could not say anything other than the usual SNB mantra, as Jordan has also made clear for fear of losing the element of surprise, could he perhaps have been adding a bit of a clue by replying in that way ?
Jordan says the decision was a unanimous one amongst the SNB board ( it has to be ) after “intense discussion” and when asked if it was necessary to inform other central banks or IMF beforehand said
The SNB is an independent central bank. It is our responsibility to prepare our own decisions.
and on when they were convinced the CHF cap had to go said
We have been persuaded in recent days that accented divergent monetary policies made impossible the continuation of the floor rate.
further suggesting that Draghi had been in touch with concerned parties re the ECB’s plans next Thursday. What still isn’t clear is whether Jordan returned the favour.
On intervention or a new cap in place at some time he says
I can not comment about it, except to say that we observe the situation on the foreign exchange market. If necessary, we will be active through interventions. In addition, the markets expect action from the ECB.
For me many questions still remain ( not least of which how I talked myself out of staying short EURCHF and failing to continue to see the wood from the trees) but what is done is done and we have to deal in real time with the after-shock. From a trading perspective all the “what-ifs?” running through our frazzled brains must be slung to one side to address what we have in front of us now. And for those who made money by sticking to the contra-view we salute you.
2015 started off brightly with many questions being raised and a few even being answered, but we’ve now entered into some really murky waters.
Full Le Temps interview here and the same interview was given to NZZ reported here ( both courtesy of google translate so not entirely accurate word for word )
Jordan- hero or villain ?
