* Dollar, euro jump vs Swiss franc after SNB intervention
* SNB to buy foreign currencies to avert deflation risks
* SNB move to benefit other European emerging markets
* U.S. retail sales were better than expected
(Updates prices, adds comments)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 12 The U.S. dollar and euro
jumped against the Swiss franc on Thursday after the Swiss
National Bank said it was intervening in the market as it faced
the growing risk of deflation.
In a statement, a spokesman for the Swiss central bank said
it was "implementing" its decision to buy foreign currencies.
The SNB also cut interest rates on Thursday by a quarter point
to a historic low, offering three-, six- and 12-month funds at
The SNB, which last intervened in August 1995, further said
it will buy not only foreign currencies but bonds as well.
Switzerland is facing its worst recession in over three
decades. For the SNB statement, click on [ID:nSNBTEXT].
In midday New York trading, the dollar rose 3.2 percent to
1.1905 francs CHF=, on track for its biggest one-day gain
since August 1995. It rose as high as 1.1965 francs, a
three-month high, according to Reuters data.
The Swiss franc is one of the world's most traded
currencies, at times prized as a safe haven for investors.
The euro climbed to 1.5302 Swiss francs, the highest since
December. It las traded at 1.5196 EURCHF=, up 2.7 percent,
the euro's best day ever against the Swiss currency.
SNB's move to zero rates and quantitative easing was
expected, traders said, but the immediate move to intervene was
Bank of New York-Mellon senior currency strategist Michael
Woolfolk said "the way this was communicated was intended at
maximizing its shock value." He said there were no hints from
SNB officials ahead of time that intervention would be
"They changed their economic outlook, they not only lowered
interest rates to effectively zero but also announced
quantitative easing and currency intervention. This was the
full monty," Woolfolk said.
POLAND, HUNGARY BENEFIT FROM SNB ACTION
Quantitative easing has been deployed by central banks in
countries including Britain, where the central bank is buying
assets with newly created money.
Marc Chandler, global head of FX strategy, at Brown
Brothers Harriman in New York said the SNB intervention should
ease pressure on Poland and Hungary, two European emerging
market countries seriously hit by the global credit crisis.
These two countries had taken advantage of ultra-low Swiss
interest rates, borrowing heavily in Swiss francs and investing
in riskier assets.
"The strength of the Swiss franc compounded their woes.
Today's dramatic weakening of the Swiss franc may ease this
pressure," said Chandler.
Gains in the dollar versus the Swiss franc boosted the
greenback against other major currencies such as the euro and
The euro fell 0.4 percent to $1.2774 EUR=. The single
currency was also pressured by comments from European Central
Bank President Jean-Claude Trichet that euro zone interest
rates could be cut further. See [ID:nLC956324].
The ECB cut its benchmark rate to a record low at 1.5
percent last week and economists expect another reduction to
1.0 percent, most likely in April.
Sterling fell 0.4 percent to $1.3800 GBP=.
The SNB news overshadowed all other events and data in the
market including U.S. retail sales numbers that were better
than expected and weekly jobless claims data that were not far
from analysts' forecasts. See [ID:nN12352975]
Against the yen, the dollar erased early losses, partly
because of firmer U.S. stocks, still one of the key drivers in
the currency market. Stocks were lifted by energy shares and
the U.S. retail sales report. The dollar rose 0.6 percent to
(Additional reporting by Steven C. Johnson; Editing by Walker