Swiss central bank sets floor for euro/franc exchange rate
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar fell versus the euro Tuesday, with the 17-nation shared currency gaining ground on most major rivals after the Swiss National Bank shocked markets by setting a floor on the euro exchange rate versus the Swiss currency at 1.20 francs.
The move triggered a dramatic round of short-covering in the euro-Swiss franc cross, lifting the euro EURCHF +8.51% from around CHF1.12 to more than CHF1.20. It changed hands at CHF1.2037 in recent action, a gain of 8.9% on the day. Read more about the SNB decision.
The euro rose versus other rivals as well to trade at $1.4185 versus the dollar EURUSD +0.64% , a gain of 0.8%, and at 109.29 Japanese yen EURJPY +0.92% , a 1% rise.
The Swiss franc fell versus other rivals. The dollar USDCHF +7.71% traded at 84.75 centimes, a rise of around 8%. The dollar also gained on the safe-haven Japanese yen USDJPY +0.31% to trade at ¥77.13, a 0.3% rise.
“The move in EUR/CHF triggered ‘risk-on’ across the board, erasing earlier losses in risk proxies [and] sending EUR/USD, USD/JPY and all risky foreign exchange higher, but we do not think that move will last,” said Elsa Lignos, senior currency strategist at RBC Capital Markets in London.
Lignos said ongoing troubles in the euro zone and a generally risk-averse environment were likely to keep upward pressure on the Swiss franc, setting up a test of the SNB’s resolve to enforce the floor.
The dollar index DXY -0.23% , which measures the greenback against a basket of six other currencies, traded at 75.126, down 0.2% from Monday. U.S. markets were closed Monday for a holiday.
“The picture looks gloomy and expectations of action both by the Federal Reserve on Sept. 21 and more immediately by U.S. President Barack Obama on Thursday have intensified,” said strategists at Credit Agricole.
Still, they said it’s unlikely that either the Fed or the president will oblige investors, and added that “all of this highlights just how ugly the U.S. dollar looks, but fortunately for the currency, the euro is looking even more unsavory.”
The British pound GBPUSD -0.10% rose 0.1% to $1.6120.
The Australian dollar AUDUSD +0.30% traded at $1.0585 versus its U.S. counterpart, up 0.7%. The Reserve Bank of Australia on Tuesday kept its policy interest rate at 4.75% as recent turbulence in financial markets outweighed worries about the prospect of rising inflation. Read about the RBA’s rate decision.
William L. Watts is a reporter for MarketWatch in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
