Swiss Peg Franc to Euro, Pledge Unlimited Currency Purchases
The Swiss central bank imposed a ceiling on the franc for the first time in more than three decades and pledged to defend the target with the ‘utmost determination,’ prompting a record drop in the currency.
The Swiss National Bank is ‘aiming for a substantial and sustained weakening of the franc,’ the Zurich-based bank said in an e-mailed statement today. ‘With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs’ and ‘is prepared to buy foreign currency in unlimited quantities.’
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The franc snapped four days of gains versus the euro, dropping as much as 8.7 percent. It traded at 1.2025 at 5:46 p.m. in Zurich and was at 85.82 centimes versus the dollar.
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Fears of a new global recession have prompted investors to pile into currencies such as the franc and the Japanese yen which are seen as havens in a time of crisis. That’s forced policy makers into action to protect their exporters.
Japan last month intervened again to stem a rising yen and Finance Minister Jun Azumi today said he will use this week’s meeting of Group of Seven policy makers to highlight the danger the currency poses to his economy. Brazil’s authorities have also sought to weaken the real.
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The SNB’s foreign currency holdings jumped to a record 253.4 billion francs ($299 billion) at the end of August from 182.1 billion francs in the previous month after it used foreign exchange swaps to weaken the franc. At the end of the second quarter, the euro made up 55 percent of reserves.