By TraderVox.com
Tradervox.com (Dublin) – The European Central Bank cut its benchmark interest rate to 0.75 percent from 1 percent as predicted while it dropped the deposit rate to zero percent. Moments after the announcement, the euro dropped against major currencies, retracting its gains last week. The sharp downward move put a lot of pressure on the Swiss National Bank as it tries to maintain it 1.20 cap against the euro. The pressure on the SNB is further compounded by the poor data from the euro zone which is indicative of a recession. The decision by ECB has put the EUR/CHF under huge pressure which led to a breach in yesterday’s trading moments after the announcement of the ADP Non-Farm Payrolls in US.
The 1.20 level provided a lot of resistance after the ECB decision, but the pressure proved strong when the ADO NFP showed a relatively huge gain from what was expected. The unofficial report showed that the NFP rose by 176,000 against an estimate of 90,000. It is expected that the weakening euro might break the cap and many investors are waiting to see how long it will last. Analysts have suggested that if this cap is broken, then it will be a fast ride down and this may pose a great risk to Swiss economy.
Thomas Jordan, who was appointed the Swiss National Bank president after former President Philipp Hildebrand left, is now faced with a tough task of ensuring that the cap is upheld. He has reiterated in many occasions that the SNB is prepared to do all it takes to preserve its monetary policy which he says is good for the country’s export trade.
The euro has also declined against the greenback and the pound after the Bank of England decided to expand its quantitative easing program to 375 billion pounds.
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