Business

Switzerland moves again in struggle to weaken currency

  • 17 August 2011
  • From the section Business

The Swiss National Bank (SNB) is struggling to pull the Swiss franc back from export-damaging record highs.

In a new move, the SNB said it would increase the cash in Swiss francs available to banks from 120bn ($152bn, 105bn euros, £92.4bn) to 200bn. But the currency has since strengthened again.

The Swiss government also said it would increase its spending by 2bn francs, to help boost the domestic economy.

Investors have moved into the franc due to worries over eurozone and US debt.

Such demand has driven it up by 20% against the dollar and the euro.

The latest attempt to dampen investors' appetite fell well short of market expectations, with the euro falling 2.4% against the Swiss currency immediately following the announcement.

Some analysts had hoped for direct intervention, and even a possible pegging of the franc to the euro to tie it to a set exchange rate.

Lena Komileva, of Brown Brothers Harriman, said: "The market was expecting far more radical measures from the SNB, like targeting a specific exchange rate. This is more of the same, and is inadequate in an environment where investors are seeking safe havens."

'Extreme cards'

The SNB's previous moves to limit the rise of its national currency have already seen it increase available deposits to commercial banks as well as cut interest rates.

Last week, SNB policymaker Jean-Pierre Danthine said that no option was being ruled out in the central bank's campaign against the currency's strength, though he said some solutions were more practicable than others.

In a statement released on Wednesday, the SNB said: "The SNB reiterates that it will, if necessary, take further measures against the strength of the Swiss franc."

Kathleen Brooks, Research Director at Forex.com, said an exchange rate peg could not be ruled out: "The SNB seems very determined to do what it can to reduce pressure on its currency and it still has more extreme cards in its hand that it could play depending on market conditions.

"So while there may not be a euro peg today that doesn't mean there won't be one tomorrow."

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