The Swiss National Bank said on Monday it was more willing to intervene in foreign currency markets after the conflict in the Middle East pushed the Swiss franc to its highest level against the euro in more than a decade.
The euro dropped to 0.9037 francs in early trading, its lowest level since the Franc Shock of January 2015, as investors sought safe havens.
The development prompted the SNB to make a rare verbal intervention, signalling its intention to check the increase of the franc, whose rise could push inflation negative and hurt Swiss exporters.
"In view of international developments, our willingness to intervene in the foreign exchange market has increased," the central bank said in a statement.
"We are prepared to intervene in the foreign exchange market to counter a rapid and excessive appreciation of the Swiss franc, which jeopardises price stability in Switzerland," the SNB said.
The last time the SNB made such a statement was in 2016, after Britain's vote to leave the European Union triggered a spike in the franc.
Analysts said they expected the SNB to sell francs to slow the currency's appreciation, but would not take interest rates below the current 0% level.
"We could expect some interventions by the SNB to slow this movement, but we don't see the SNB defending a certain level and prevent the franc going below that," said UBS economist Alessandro Bee.
"They will want to take some momentum out of the move, but won't defend the 0.90 level, for example, because these strong inflows into the franc could reverse very quickly."
Bee said it was unclear how long the situation would last, so it did not make sense to take Swiss interest rates negative or other emergency measures.
"That would only be appropriate if there were long-term problems like a slowdown in the global economy or other central banks were cutting rates," Bee said.
"This spike in the franc is not a structural problem in the euro zone like what happened in 2011. It’s down to geopolitics and risk aversion."
(Reporting by John Revill;Editing by Ludwig Burger, Muralikumar Anantharaman and Neil Fullick)
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