Swiss franc drops 9% after strong intervention

Swiss central bank moves to counter recent appreciation of the Swiss franc.

The Swiss franc lost close on 9% in morning trading in one of the largest currency moves ever recorded, according to currency traders.

The drop follows an announcement by the Swiss National Bank of an intervention policy aimed at pegging the value of the Swiss franc at 1.20/Euro.

The move by the Swiss National Bank to curtail the rise of the currency could put further pressure on investors who have seen the Swiss franc as a safe haven in volatile markets. Other assets such as gold are likely to benefit. 

Clive Lennox at Clear Currency said it was not the first time the SNB had sent such a strong signal to the market. The bank has previously indicated an amount behind its intervention, but not a level.

"This is a far stronger statement," said Lennox. "There is no time limit given, so it is indefinite. EUR/CHF is trading up 8.8%, almost a Richter scale measurement, such was the size of the tremor created."

The move dwarfs those seen following the collapse of Lehman Brothers, the 7/7 attacks on London, and other major geo-political events in the past decade, notes Jeremy Cook, chief economist at currency brokers, World First.

"That was the single largest foreign exchange move I have ever seen. The Swiss have had enough, and have said today that they are willing to buy foreign currencies in ‘unlimited amounts'. This is intervention on a grand scale."

Cook said the action "turns up the heat on the Eurozone and other economies, which have benefited from their weakening currency in the past couple of years."

Lennox said the SNB had embarked on a risky strategy, but added: "You have to back the Swiss. They have a very believable monetary policy."

The Governing Council of the European Central Bank has been informed by the Swiss National Bank about its decision to "no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20."

A statement from the ECB said the Governing Council "takes note of this decision, which has been taken by the Swiss National Bank under its responsibility".