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Forex - EUR/CHF pulls back sharply as SNB stops short of peg

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Forexpros - The euro erased gains against the Swiss franc on Wednesday, pulling back from a three-week high, after the Swiss National Bank announced further measures to weaken the franc, but stopped short of pegging the currency to the euro.

EUR/CHF pulled back from 1.1547 during late European morning trade, the highest since July 27, to hit a daily low of 1.1219, following the SNB's announcement.

The pair subsequently consolidated at 1.1390, still down 0.7% on the day.

The pair was likely to find support at 1.1161, Tuesday's low and short-term resistance at 1.1645, the high of July 27.

The Swiss National Bank said earlier that it would take additional measures, including further increasing liquidity to the money market and conducting foreign exchange swap transactions to curb recent gains in the Swissie.

The SNB added that it would further expand banks' sight deposits at the central bank and that it would take further measures, if needed, against the strength of the Swiss franc.

But the SNB stopped short of pegging the currency to the euro or intervening directly in the currency market, as some had speculated in recent days.

"The measures taken thus far by the SNB against the strength of the franc are having an impact, nevertheless, the franc remains massively overvalued," the SNB said in a statement.

Meanwhile, the single currency was weighed after Tuesday's meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy failed to ease concerns over the euro zone's ongoing sovereign debt crisis.

The two leaders proposed a new council to improve the governance of the euro zone and planned to introduce a financial transaction tax in September.

But they fell short of increasing the region's bailout fund, which many feel is inadequate should the debt crisis spread to Italy, Spain or France.

They also rejected issuing euro bonds, saying that the bonds will not solve the single currency bloc's debt issues, disappointing investors who had been anticipating such an action.

Elsewhere, the euro was fractionally lower against the yen, with EUR/JPY dipping 0.05% to hit 110.59.

Earlier in the day, official data showed that consumer price inflation in the euro zone held steady at 2.5% in July, while core CPI rose 1.2%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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