By Polya Lesova and Sarah Turner, MarketWatch
LONDON (MarketWatch) — The Swiss franc rallied on Thursday after the Swiss National Bank maintained the minimum exchange rate of 1.2 francs per euro, while the U.S. dollar fell against most of its major rivals.
The euro and the dollar slumped against the franc after the SNB defied calls from Swiss exporters to raise the exchange-rate floor to 1.25 francs per euro, noted Kathleen Brooks from Forex.com.
The SNB said the franc’s substantial appreciation over the summer has weighed on the Swiss economy. The bank said it’s ready to take further measures if the economic outlook and the risk of deflation so require.
“The bank may not want to wade in to protect the franc while the euro-zone crisis remains at such a critical level as this limits the chance of its success,” Brooks said. However, “as long as deflation risks remain a near and present danger, then increasing the euro/franc floor will be cards for the medium term,” she added.
The dollar index DXY -0.31% , which measures the greenback against a basket of six rivals, slipped to 80.252 from 80.538 in late North American trading on Wednesday.
The euro EURUSD +0.33% managed to retake some ground lost against the dollar Wednesday, trading recently at $1.3022, up from $1.2986 in late North American trading in the previous session.
On Wednesday, the euro had fallen to its lowest level since January after Italy’s borrowing costs surged to euro-era highs at a bond auction, indicating that last week’s summit had done little to alleviate the funding stresses that some governments face.
“It was inevitable that after yet another disappointing European Union summit outcome, the euro should feel some pressure, although it has taken the absence of major Middle Eastern and Chinese demand for the currency to see it fall,” said Mitul Kotecha, strategist at Credit Agricole.
“The sharp drop in the euro over recent days is finally beginning to reflect a foreign-exchange market coming to terms with reality,” Kotecha said.
Still, the strategist said that downside could be limited in the short term as “euro/dollar has now come back into line with what would be expected by interest-rate differentials with the U.S.”
“Further out, the downtrend will stay intact, especially given the worsening economic picture across the euro zone,” Kotecha said.
The British pound GBPUSD +0.34% traded at $1.5514, up from $1.5473 in late trading on Wednesday.
The dollar USDJPY -0.39% bought 77.79 yen, compared with ÂĄ78.08 in late North American trading Wednesday.
Polya Lesova is chief of MarketWatch’s London bureau.
Sarah Turner is MarketWatch's bureau chief in Sydney.
