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Currencies: Swiss franc falls as Swiss central bank sets negative interest rate

LONDON (MarketWatch) — The Swiss franc dropped against the euro and the dollar Thursday, hurt after Switzerland’s central bank said it will usher in negative interest rates.

The dollar USDCHF, +0.82%  fetched as much 0.9849 Swiss franc versus 0.9741 on Wednesday, according to FactSet data, after the Swiss National Bank unexpectedly said it will begin charging banks 0.25% to leave their funds with it overnight, starting on Jan. 22.

The euro EURCHF, +0.24%  bought as much as 1.209 Swiss francs, more than 1.021 francs on Wednesday, before the announcement. It has since moved off the high to buy 1.204 francs.

The central bank’s move is aimed at curbing flight to the franc and keeping the euro capped at one to 1.20 Swiss francs.

“Over the past few days, a number of factors have prompted increased demand for safe investments,” the SNB said in a statement. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”

What Russia has done to the Swiss franc: The currency crisis in Russia “may have accelerated the demand for the safe haven harbor of the Swiss franc and if the ruble continues to depreciate, the Swissie could see further capital flows from that region,” said Boris Schlossberg, managing director of FX strategy, at BK Asset Management, in a note.

But retreat of the euro off its highs against the franc “is telling as it suggests that the market remain skeptical of SNB’s ability to maintain this level in perpetuity,” as European monetary officials continue suggest it will launch a full quantitative easing program early next year, said Schlossberg.

The dollar USDRUB, -1.39%  during Thursday’s session crept above the 63-ruble level as Russian President Vladimir Putin held his annual press conference in Moscow, but has since softened back to 61.06 rubles.

Putin said the Russian economy will rebound in, at the most, two years. Russia has enough currency reserves, he said, though he doesn’t want the central bank to “burn” through them in an effort to protect the ruble. Putin also said the government is taking adequate measures to aid the economy. The president also said the ruble’s decline is largely linked to the recent slide in oil prices.

Meanwhile, the dollar EURUSD, -0.58% rose against the euro, holding to higher ground after Federal Reserve Chairwoman Janet Yellen on Wednesday essentially ruled out an interest-rate increase until April at the earliest. The dollar had trailed the euro over the past week ahead of the Fed statement.

The Fed added new language to its policy statement, saying it can be “patient” before starting to hike rates. The euro traded at $ 1.2317 on Thursday compared with $ 1.2344 on Wednesday.

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