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EURCHF DROPPED 30 POINTS IN ONE BOUNCE

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EURCHF DROPPED 30 POINTS IN ONE BOUNCE

Jan 15 2015, 11.58am GMT

STOCK.com

Swiss National Bank removes floor for forex and decreases interest rate in surprise announcements.

EURCHF down below floor of 1.20 to 0.90; recovery in motion at 1.027

Reported by the SNB today, the release states, “The Swiss National Bank (SNB) is discontinuing the minimum exchange rate of CHF 1.20 per euro. At the same time, it is lowering the interest rate on sight deposit account balances that exceed a given exemption threshold by 0.5 percentage points, to −0.75%. It is moving the target range for the three-month Libor further into negative territory, to between –1.25% and −0.25%, from the current range of between −0.75% and 0.25%.

In terms of the exchange rate that fell through the floor from 1.20 to 0.90, down 30 points or 25%, the SNB had said, “The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.

The SNB set out its reasons as follows: “Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.

To declare its independence, the SNB stated that it is “lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions. The SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future. If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions.”

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