2015 — SNBomb
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After a year of regulatory updates, 2015 was expected to remain relatively uneventful. That, however wasn’t to be, as the year began with a bang!
After seven years of austerity, global speculation was that the European Central Bank would begin to adopt a Quantitative Easing programme, like we thought back in 2012. The world eagerly awaited the meeting scheduled for January 22. However, something was to overshadow the announcement.
On January 15, the Swiss National Bank (SNB) removed the euro peg that had been in place to maintain the foreign exchange value of the EURCHF. The apparent aim of the SNB had been to devalue the franc, yet the franc exploded in value by 30% against the euro instead.
As a result, brokers and traders across the world were in dire straits. The use of high leverage meant that many brokers were left owing millions to their liquidity providers, and many traders were left with huge negative balances owed to their broker!
Switzerland’s removal of the peg came about because of increased upward pressure on the Swiss franc. A combination of weakening stock markets, concerns about global growth, the ruble collapse (thanks to the previous year’s oil saga), and tensions in Ukraine led many investors to use the CHF as a safe-haven asset.
As the euro was already dragging down the Swiss franc, a proposed Quantitative Easing programme by the ECB would only exacerbate the situation.
As planned, on January 22, and with a much weaker euro, the ECB agreed to purchase 60 billion in euro-denominated bonds. The silver lining being that the euro plunged, increasing exports!
However, the SNB wasn’t the largest economic influencer of 2015! Continuing from 2014, lower oil prices weighed heavily on global economy…
Oil supply continued to grow while demand stagnated, putting increased downward pressure on the price. At the same time, OPEC refused to limit production, maintaining and increasing that downward pressure.
Alongside the oil saga, China began to flex its muscles regarding market movement. On August 11 it devalued the yuan, likely aiming for cheaper exports. The market’s initial reaction was a loss of confidence in the Chinese economy, resulting in a sell-off of risky assets, forcing the S&P500 down by 12%. On August 24, and under the weight of increased pressure from the sell-off, US stock markets collapsed. The Dow took a nose-dive of more than 1000 points, with other indices ending the day down by 3–4%!
With these huge swings, 2015 ended up being quite a year for economic volatility. So how did the global markets recover? Find out tomorrow in our next instalment of 10 years of Forex!
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