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Swiss National Bank intervenes to weaken the threat posed by strong franc

Switzerland's economy suffers from a "massive overvaluation" of the Swiss franc.

The Swiss National Bank (SNB) has acted upon its fears that the current value of the Swiss franc will pose a threat to its economy and in particular, to its export market, by imposing a minimum exchange rate of 1.20 francs to the euro. Switzerland's traditionally stable economy is now suffering from what the SNB have labelled as a "massive overvaluation" of the Swiss franc and with predictions of a possible loss of 25,000 jobs to come, the SNB have chosen to step in and aim for a "substantial and sustained weakening" of the franc.

In a statement, the SNB contended that the current value of the Swiss franc "poses an acute threat to the Swiss economy and carries the risk of a deflationary development." In order to facilitate the weakening of its currency, the SNB has stated that it is "prepared to buy foreign currency in unlimited quantities."

The measure, largely seen as a last resort, had immediate consequences with the euro rising from about 1.10 francs to 1.21 following the announcement. In addition, the Swiss stock market, the Zurich SMI rose 4 per cent, with exporters the biggest risers. According to Jeremy Cook, chief economist at World First, the movement of currency that followed the announcement was "the single largest foreign exchange move I have ever seen." Against the franc, the euro rose by 9 per cent, the dollar increased by 7.7 per cent and sterling gained 7.8 per cent.

Despite attempts to lower the value of the dangerously-high Swiss franc, business leaders are still concerned that the level of 1.20 francs to the euro is still too high and would better prefer a rate of 1.30 instead, according to a report published by the BBC.