As the Swiss National Bank severed the minimum exchange rate between the Swiss Franc and the Euro, the two currencies raced apart in opposite directions to each other this morning. At one point a gulf of 30% developed between the CHF and the currency of all of its neighbours and as I write, the situation is still volatile.
The impact of this action has sent shock waves throughout the Swiss watch industry, and indeed Swiss exporters in general, as the action will force watch companies of all sizes to either allow prices in the EU to ramp up dramatically, or alternatively (and less likely) cut into their profits, but whichever choices are made in the boardrooms of Swiss exporters in the coming days, with watches accounting for 10% of Swiss exports, the implications are worrying, and the likelihood of a tangible knock-on effect is high.
Unless the two currencies draw closer to the long-standing rate which until this morning had seen the CHF capped at a bottom of 1.20 to the Euro, significant upward price revisions on all Swiss watches are seemingly unavoidable. There has been much speculation about the ECB preparing itself for a round of quantitative easing, a step which would almost certainly see the Euro weaken even further than in recent months, and it is one view that SNB felt the need to distance the CHF from its heretofore inextricable link to the Euro before it becomes embroiled in the Euro's woes, and finds itself sucked in a downwards vortex through no fault of its own, other than association with the increasingly burdened European standard.
It's a very worrying time for large and small watch companies in the Swiss heartland of watchmaking, and when asked for his views on the news Swatch CEO Nick Hayek has described the decision this morning as a "tsunami for the export industry", and shares in his company (and the others such as Richemont) have nose dived by 15% in early trading today.
Clearly, this is very serious news for the Swiss watch industry, and has the potential to be its most injurious blow in many years.
We would love to hear your feelings on the matter if you are a buyer, watchmaker or company executive, so let us know what's being said in your offices today.