The Swiss National Bank caused a furor overnight by abandoning its pegging of the Swiss franc against the euro. Pundits are saying “huge faux pas,” “loss of credibility,” blah blah blah.
To me this says that the SNB has been warned by Draghi of the details of the QE program to be announced next week, and has concluded that the program is so massive that it would not be able to sustain its peg in the face of the euro devaluation implicit in the program.
The SNB was publicly reinforcing its long-term commitment to the peg as recently as late December of last year. But there are always limits to “whatever it takes.”
I don’t trade foreign currencies, but if I did I would have shorted the euro on the news. As it is, I expect a European vacation next summer will be much cheaper than last year. Europeans, unfortunately, can expect to start swirling around the same drain down which the Japanese economy is disappearing. Of course, a weak euro will also increase the deflationary pressure on the US.