RTTNews - Thursday, the Swiss franc surged up to near a 5-week high against the European currency after the Swiss National Bank said it had been successful in stemming the domestic currency's appreciation against the euro.
The franc also edged higher against its other major counterparts and climbed to a 10-day high against the British pound.
SNB Governor Jean-Pierre Roth said the central bank had achieved its aim with forex intervention, and that the Swissie's appreciation against the euro and volatility had eased.
The Swiss National Bank or SNB left its key interest rate unchanged and said it will take firm action to prevent the appreciation of the Swiss franc as the country still faces deflation risks.
The central bank left its three-month libor target range unchanged at 0%-0.75%, as expected. In other words, the bank kept its key interest rate unchanged at 0.25%.
It last cut the rate in March, when it expanded its response to the economic crisis by starting bond purchases and intervening in currency markets on its own for the first time since 1992.
The central bank said today in a statement that it will continue to provide the economy with a generous supply of liquidity and to purchase Swiss franc bonds with the aim of reducing risk premia on long-term bonds issued by private sector borrowers.
The central bank also noted that despite the emergence of some encouraging signs, the global economic situation remains unfavorable and further economic deterioration cannot be ruled out. In Switzerland, the economic situation is difficult; the risk of deflation has abated, but still remains a concern.
The Swiss central bank also maintained its GDP growth forecast for this year. It expects real GDP to fall by between 2.5% and 3% in 2009.
The bank also kept its inflation forecast for 2009 untouched at negative 0.5%. The SNB expects this trend to reverse from the beginning of the next year. Inflation will become slightly positive, amounting to 0.4% in 2010 and 0.3% in 2011, the central bank said.
Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank said, It is to be hoped that the signs of improvement observed abroad will be gradually transmitted to the Swiss economy. The bank's Vice-Chairman Philipp Hildebrand also shared the same view.
Roth added that the decline in exports is likely to slow down from the second quarter. However, weakening domestic demands and the reduction in inventory levels would keep growth figures negative for next few quarters.
SNB directorate member Thomas Jordan said the bank also plans to continue liquidity-boosting measures such as the purchase of bonds. Under the bank's bond repurchasing program launched in March, it bought Swiss covered bonds for 2.5 billion francs ($2.32 billion) and corporate bonds for 300 million francs.
Swiss policy makers are trying to pull the economy out of its worst recession in more than three decades and the government yesterday pledged to increase stimulus spending.
The government announced new stimulus measures worth 400 million Swiss francs to fight rising unemployment. It brought overall measures of the third economic package to 750 million francs.
The Swiss government also lowered its economic outlook for 2009 to address the recession.
The State Secretariat for Economic Affairs or SECO said yesterday that gross domestic product or GDP may fall 2.7% this year and by 0.4% next year. It was down from its previous forecast of a 2.2% contraction for this year and a slight recovery of 0.1% for 2010.
Consumer prices are forecast to decline 0.5% this year and may increase 0.9% in the coming year. In the March report, the government had forecast a 0.2% fall for this year and a rise of 1% for the next year.
Further, the forecast for the jobless rate in 2009 is kept untouched at 3.8%, while revised to 5.5% from 5.2% for the next year.
Against the US dollar, the Swiss franc edged higher to 1.0770 during early deals on Thursday. The next upside target level for the franc is seen around 1.062. The dollar-franc pair closed Wednesday's New York deals at 1.0802.
The Swiss currency climbed to 1.5019 against the euro at 4:30 am ET Thursday. This set the highest point for the franc since May 15,2009. The franc is currently trading at 1.5041 against the euro with 1.499 seen as the next target level. The euro-franc pair closed Wednesday's North American session at 1.5062.
The Swiss franc that declined to a 7-week low of 1.5239 against the euro on June 5, 2009 strengthened
Against the British pound, the franc rose to a 10-day high of 1.7476 during Thursday's early deals. On the upside, 1.73 is seen as the next target level for the Swiss franc. The pound-franc pair closed yesterday's trading at 1.7719.
The franc gained ground after hitting a new multi-month low of 1.7893 against the British pound early this week. Thus far, the Swiss currency has appreciated around 2.3%.
The pound has fallen against other major currencies today after U.K. retail sales data fell far short of expectations and public sector borrowing rose to a new record high in May.
A report from the Office for National Statistics showed an annual decline of 1.6% in the U.K. retail sales volume in May. Economists had expected only 0.4% fall in sales. From April, retail sales volume unexpectedly decreased 0.6%, as economists were looking for a 0.3% rise.
U.K.'s public sector net borrowing was GBP 19.9 billion in May, up GBP 7.6 billion from the amount borrowed in the same month of the previous year, the Office for National Statistics said today. It was also an increase from revised GBP 10.64 billion borrowed in April. Economists had expected a borrowing of GBP 19.3 billion in May.
Today, the British Chambers of Commerce slashed its GDP forecast for the U.K. economy. The economy is now expected to shrink 3.8% this year compared to its earlier estimate of 2.8% contraction. A very small growth of 0.6% is expected for 2010.
During today's early deals. the Swiss currency advanced to 89.18 against the Japanese yen, compared to 88.69 hit late New York Wednesday. If the Swiss franc gains further, 90.5 is seen as the next target level. The franc-yen pair is now worth 88.80.
Traders now look forward to the New York session, in which the Labor Department is due to release its customary weekly jobless claims report for the week ended June 13th at 8:30 am ET.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 am ET. Economists expect the diffusion index of current activity to show a reading of -17 for June.
At the same time, the Conference Board is scheduled to release a report on the U.S. leading index for May . The consensus estimate calls for a 0.9% increase in the leading indicators index for the month.
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