Verbal Interventions and Exchange Rate Policies: The Case of Swiss Franc Cap

We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement reduced the uncertainty of future euro/Swiss franc rate significantly and therefore reinforced the perceived continuation of the policy.