SWITZERLAND’S central bank sent shock waves through the currency markets yesterday as it scrapped its three-year cap on how much the euro could fall against the Swiss franc.
The Swiss National Bank (SNB) said the 1.2 francs to the euro limit was no longer justified in light of the single currency’s recent decline in global markets.
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The unexpected decision to ditch the policy – which the SNB had re-iterated just days before – sent the euro plummeting 28 per cent against the Swiss currency, to below 0.9 francs.
The move gave a boost to European equities, with France’s Cac 40 index and Germany’s Dax both adding more than 2 per cent, with london’s FTSE 100 making more modest gains, up 1.7 per cent.
The minimum exchange rate was introduced in September 2011 in an attempt to halt the rise of the franc – a traditional safe-haven currency for investors – against the euro at a time when the eurozone debt crisis was at its height. The strong franc was particularly problematic for Swiss exporters.
The SNB also said it would also lower its average interest rate to minus 0.75 per cent, from minus 0.25 per cent.
Simon Smith, chief economist at FX Pro, said: “Clearly, the SNB felt that they were giving with one hand and taking away with the other by moving rates further into negative territory.
“But at this point in time, the SNB has broken a dam wall and the waters have flooded out. It will take time to see what lies beneath.”
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