By TraderVox.com
Tradervox (Dublin) – The Swiss National Bank had come under pressure to defend its 1.20 francs per euro limit and breaches of the cap about the SNB intentions. Today the SNB Interim Chief Thomas Jordan indicated that the bank will continue to enforce the cap despite the recent trends in the euro. The euro has weakened over the last few days due to fears that the debt crisis might not be over, which was raised during the Spain bond auction last week. Investors are looking at the France auction to determine whether the threat is real for the euro.
Thomas Jordan said that the Swiss National Bank was taking measures to enforce the minimum exchange rate. He said that the Central Bank is ready to buy foreign currency in “unlimited quantities” to ensure that the cap is observed and insisted that the policy of the SNB remain unchanged. The cap was breached for the first in April 5 when the exchange rate reached 1.9995 francs per euro. After this breach and the Jordan’s statement, David Kohl, an economist in Frankfurt said that the it is hard for the SNB to control the market and due to the high market transparency any slight breach in the limit set will attract a lot of attention.
After the SNB interim chairman’s remarks, the Franc remained unchanged at 1.2026, which is above the level it was before the first breach. The SNB has included more than 100 banks as counterparties to help it keep the cap and Jordan was quick to indicate that with the help of these financial institutions, the SNB was able to bring the situation back to normal.
In his statement, Jordan indicated that the price below the 1.20 cap was set by banks that are not participating in the project which were quoted. But the SNB was prepared to buy more foreign currency to ensure that the limit is observed. Further, the pressure on the franc came from the euro region where Mariano Rajoy, the Spain’s Prime Minister had indicated that his country was in “extreme difficult” after the Spain Bond auction failed to live up to the expectations. This pushed demand for safe haven currencies and the Swiss Franc was the best option for many.
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