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Currencies: Swiss franc slides to lowest since euro cap was ditched

LONDON (MarketWatch) — The Swiss franc on Tuesday dropped to its lowest level against the euro since its exchange cap was removed in mid-January, after Switzerland’s central bank said it’s ready to intervene in the currency market if necessary.

The Swiss National Bank sent shock waves through the global foreign-exchange markets on Jan. 15 when it scrapped its trading cap against the euro and let the Swiss franc float freely. For more than three years, the SNB had been buying billions of euros to prevent the franc from climbing too high and kept an exchange rate floor of 1.20 francs to the euro. Immediately after the move, the euro plunged as low as 0.85 francs and traded close to, or just below par most of last week.

However, on Tuesday, the franc fell to its lowest level since the SNB ditched the trading cap, after SNB vice chairman Jean-Pierre Danthine said the central bank is still prepared to intervene in the currency market to keep the franc relatively weak, speaking in an interview with Swiss newspaper TagesAnzeiger. The euro EURCHF, -0.23%  jumped to as high as 1.0381 francs, from 1.0150 earlier in European trading. The dollar USDCHF, -0.51%  rose to 0.9090 francs, up from 0.9030 late Monday.

More broadly for the euro EURUSD, +0.31% the shared currency climbed to $ 1.1309, from $ 1.1239 late Monday.

In other currencies, the pound GBPUSD, -0.01%  declined to $ 1.5067 after the Office for National Statistics said the U.K. economy expanded by 0.5% in the fourth quarter, according to its preliminary estimate. That was a slower growth rate than the 0.7% logged in the third quarter and weaker than the 0.6% expected by economists. For the full year, GDP grew 2.6%, less than the forecast of 2.8%.

Ahead of the release, sterling traded at $ 1.5087, which was a small increase from the $ 1.5082 recorded late Monday in New York.

The dollar was lower against the yen, as comments by a Japanese government minister about the Bank of Japan’s 2% inflation target reduced hopes for extra monetary-easing steps by the central bank.

Economy minister Akira Amari said Tuesday that the central bank was not constrained by a loose schedule of about two years for achieving its inflation goal, pointing to falling energy prices as a factor that would likely delay efforts to reach its target.

“It would be fine to give the BOJ more room for its main time frame of about two years,” said Amari, adding that “neither the government nor the BOJ have clearly made a rigid commitment to a deadline.”

The remarks pulled down the dollar USDJPY, -0.34%  to ¥118.18, compared with ¥118.48 late Monday in New York.

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The comments suggest “the government is slightly loosening its interpretation” about the inflation target, thus “receding expectations for early monetary easing by the BOJ and inviting yen buying,” said Yuji Saito, executive director of foreign exchange department at Crédit Agricole in Tokyo.

The WSJ Dollar Index BUXX, -0.22% a measure of the dollar against a basket of major currencies, was down 0.3% at 85.38, while the ICE dollar index DXY, -0.28%  fell 0.3% to 94.50.

In Russia, the ruble USDRUB, -0.66%  rebounded, so that the dollar bought 67.9 rubles, down from 68.8 on Monday. The ruble slid to its lowest level against the greenback since its mid-December collapse on Monday, after Standard & Poor’s Ratings Services cut Russian debt to junk.

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