In an effort to protect its exporters dealing with Europe’s financial crisis, Switzerland has capped the franc’s exchange rate against the euro.
Economies across the globe have been inconsistent, swinging wildly on a nearly daily basis, pushing investors towards gold and Swiss currency as a safe haven. As a result, the franc has become more valuable and the country’s exports more costly on markets worldwide. The value of the Swiss franc has risen around one third.
“The current massive over evaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development,” the Swiss National Bank said.
The central bank then warned that it will no longer accept an exchange rate lower than 1.20 francs to the euro, and will maintain that limit by buying other unlimited quantities of currencies. The Bank added that it may lower the rate further if necessary.
The move surprised many, lowering the franc by 8%. Gold rose to an all-time high before settling back.