Forex News – SNB keeps euro-franc floor at 1.20 CHF

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The euro eased against the Swiss franc, to move off two-month highs after the Swiss National Bank (SNB) announced that it left the exchange rate cap of 1.20 CHF  unchanged. The target for interest rates, which is the three-month Libor, was kept the same, at the current target of zero to 0.25 percent.

On Wednesday, the EURCHF climbed to the highest level since January 10, as investors were worried that the SNB might lift the floor on the euro-franc, which it imposed on September 6 in an effort to keep the Swiss currency from gaining too much strength.

This does not mean that the franc will strengthen further as the SNB stated that even at current levels the CHF remains strong which could pose a downside risk to price stability, and there remains a high chance that the central bank will be forced to take further measures this year. The bias to loosen policy further is based on the risks of deflation. The SNB has no intention of shifting from its ultra-loose stance anytime soon.  The yearly inflation number shows a slight adjustment lower, which is of especially if the Swiss franc does not weaken and cause inflation to drop even further. This would threaten the 1.20 CHF threshold.

EURCHF had reached a high of 1.2146 on Wednesday  but eased down to 1.2084 after the SNB meeting today.