Switzerland scraps euro rate cap, shocking markets

GENEVA, Jan 15 (AFP): Switzerland's central bank said Thursday it was ending a three-year bid to hold down the value of its currency against the euro, in a surprise announcement that sent stocks plunging and the franc soaring almost 30 per cent in minutes.
The bank said it would no longer maintain the minimum rate of 1.20 francs against the euro as its currency was no longer massively overvalued and Switzerland's export-intensive economy has had time to adjust.
But immediately after the announcement, the Swiss franc strengthened 29 per cent to 0.8517 against the euro, and also soared significantly against the dollar to 1.1362.
Fearful that a strong franc could dent earnings as exports became more expensive, investors dumped Swiss stocks, sending them plunging more than 12 per cent.
Swiss watchmaking giant Swatch saw its share price slump 15 per cent, while shares in the world's second largest luxury group Richemont plummeted more than 14 per cent.
"Markets are clearly in panic mode," IG analyst Andreas Ruhlmann said, adding that he expected the central bank to rapidly shift strategies "to a new one which will better represent the real market conditions."
The SNB had since September 2011 been defending the exchange rate floor in a bid to protect the country's vital export industry, including by buying massive quantities of foreign currencies.