Swiss franc jumps as SNB stops short

Zurich, - The Swiss National Bank on Wednesday made fresh efforts on Wednesday to tame a runaway franc but again steered clear of direct intervention, disappointing markets that had positioned for more radical measures and sending the currency sharply higher.


The central bank said it would further boost liquidity by expanding sight deposits to 200 billion Swiss francs from 120 billion francs, and would if necessary introduce further measures.


The announcement boosted the franc by as much as 2 percent against the euro, given players had speculated the SNB might set a lower limit for the euro-Swiss franc exchange rate, with some anticipating an announcement on Wednesday.


"The market was expecting far more radical measures from the SNB like targeting a specific exchange rate. This is more of the same, and is inadequate in an environment where investors are seeking safe havens," said Lena Komileva of Brown Brothers Harriman.


Worries about the global economy and debt in the euro zone and the United States have prompted investors to pile into the safe-haven 'Swissie', which has rallied some 20 percent against the euro and the dollar in recent months.


The SNB had already responded by slashing its already low interest rate target to virtually zero and expanding sight deposits.


SNB policymaker Jean-Pierre Danthine said last week that no option was being ruled out in the central bank's campaign against the currency's strength, though he said some solutions were more practicable than others.


The Swiss franc has soared to record levels versus both the euro and the U.S. dollar as debt problems and worries about slowing economic growth drive investors into the safe-haven currency.


“It’s clear that Swiss authorities would prefer to use only verbal intervention to weaken the franc as the prospect of an actual peg would put enormous stress on the system, but the impact of jawboning will diminish if they do not take any material action relatively soon,” said Boris Schlossberg, director of currency research at GFT.


The euro/franc cross could probe the CHF1.12 level over the course of the day, while the dollar/franc pair could test the 78.00 centime level if a rise in risk aversion prompts traders to challenge the SNB’s resolve, he said.


The euro was already under pressure after a high-profile meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel failed to produce concrete steps toward ringfencing the euro zone’s long-running sovereign-debt crisis, Brooks noted.


The euro EURUSD -0.06% traded at $1.4389 versus the dollar, down from $1.4409 in North American activity late Tuesday.


The dollar index DXY +0.07% , which tracks the performance of the greenback against a basket of six major currencies, traded at 74.032, up from 73.967.


The British pound GBPUSD -0.47% traded at $1.6451, down slightly from $1.6464 ahead of the release of the minutes of the Bank of England’s August policy meeting.


The dollar traded at 76.58 yen versus the Japanese currency USDJPY -0.29% , down from ¥76.75 late Tuesday.