On Tuesday September 6, 2011, 7:16 pm
NEW YORK (AP) -- The U.S. dollar rose against the Swiss franc Tuesday after Switzerland's central bank took the unusual step of putting a cap on the value of its currency. The dollar also rose against the euro, pound and yen.The Swiss franc, considered a safe-haven currency by investors, had risen sharply against the dollar and euro this year as fears of slowing growth hit global markets.
The Swiss National Bank said it will spend whatever it takes to keep the franc from rising above 1.20 francs per euro. A strong franc made exports and traveling to the country more expensive. The central bank said it needed to do something to cut the currency's value in order to avoid a recession.
In late trading Tuesday, the dollar jumped to 0.8615 Swiss franc, its highest point since May 27. It was worth 0.7861 Swiss franc late Monday.
The euro fell to $1.3991 from $1.4091. It was the first time the euro has fallen below $1.40 since July 13.
Kathy Lien, director of currency research at GFT, said the Swiss National Bank's actions could stabilize the currency for at least the next few months. However, Lien said in a research note, "as long as the eurozone continues to be mired in debt troubles, investors will still be tempted to park their money" in the Swiss franc.
The move from the Swiss National Bank comes just more than a month after the central bank cut the country's interest rate in an attempt to curb the franc's climb. A day later, Japan also intervened to curb the rise of the yen.
Like the franc, the Japanese yen is considered a safe-haven currency. Traders consider the Japanese yen "safe," despite Japan's troubled economy, because Japanese investors hold much of the country's massive public debt. That lessens the risk of a financing crisis. Meanwhile, Switzerland has acted as a European haven for investors wary of the euro and the debt loads of countries in the 17-nation euro bloc.
The dollar, the other safe-haven currency, is the world's reserve currency, and the U.S. is the world's largest economy. But the dollar's appeal has dimmed on concerns about slow growth and the country's ability to cut its deficit in the long term.
In other trading Tuesday, the British pound fell to $1.5936 from $1.6098. The dollar rose to 77.67 Japanese yen from 76.83 Japanese yen. Meanwhile, the dollar fell to 99.01 Canadian cents from 99.11 Canadian cents.
http://finance.yahoo.com/news/Dollar-rises-franc-falls-on-apf-889946611.html?x=0&.v=9
, On Tuesday September 6, 2011, 2:18 pm EDT
The Swiss have had enough of taking the neutral stance.To put a stop to the Swiss franc's rapid appreciation, the Swiss central bank announced a ceiling on the currency by setting an exchange rate minimum against the euro.
On Tuesday, the Swiss National Bank (SNB) made its boldest move yet by announcing that the exchange rate between the Swiss franc and the euro must not drop below 1.20 euros. And if it does, the Swiss bank is prepared to enforce the minimum by selling francs and buying up euros "in unlimited quantities."
"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," said the SNB in a statement.
Immediately following the announcement, the Swiss franc sank 8.5% to trade right around 1.20 euros.
"This is the most aggressive step the Swiss have taken in the history of the SNB to combat the Swiss franc's rise," said Kathy Lien, director of currency research at Global Forex Trading. "They're hoping this will diminish speculative interest and safe haven attraction to the currency."
Is the euro doomed?
Nervous investors have sought safety in the traditional safe haven asset. Since the start of the year, the Swiss franc has surged nearly 20% against the euro due to growing global economic uncertainty. Just last month, the franc strengthened enough to trade close to parity against the euro.
A strong franc makes Swiss goods less attractive to trading partners, and tourists -- a major source of income for Switzerland -- are less likely to visit.
The Swiss central bank has tried to step in to cool the rally by cutting interest rates, but to no avail.
Lien said the latest move should help stabilize the currency, but it could be an uphill battle.
"The reason the Swiss franc has been climbing so fast recently is because of the sovereign debt crisis in Europe," she said. "Europe is still very much in trouble, and if problems keep flaring up, investors will still be tempted to park their money in the Swiss franc."
That could make this commitment to stem the franc's value costly for the Swiss banks, which has about 150 billion euros in reserves to spend on intervention, Lien said.
The SNB took similar measures in March of 2009, when the Swiss franc rose as high as 1.45 euros, and the central bank spent 4 billion euros to stabilize the franc above 1.50 euros, said Lien.
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