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Forex - EUR/CHF rallies to 2-week high on franc peg talks

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Forexpros - The euro surged against the Swiss franc on Monday, extending sharp gains from the previous session as speculation grew that the Swiss National Bank would link the franc to the euro and set an exchange rate to stem gains in the currency.

EUR/CHF hit 1.1458 during U.S. morning trade, the highest since July 29; the pair subsequently consolidated at 1.1284, surging 1.79%.

The pair was likely to find support at 1.0684, last Friday's low and short-term resistance at 1.1490, the high of July 29.

Swiss newspaper SonntagsZeitung reported on Sunday that the Swiss National Bank and the Swiss government were in "intense talks" over a possible exchange rate target level to curb strong gains in the currency.

Speculation that the central bank would peg the franc to the euro gained ground after the newspaper reported that plans are "ready," and the SNB may set such a target in "coming days".

According to the newspaper, lobby group Economiesuisse was pushing for a target in the range of 1.1000-1.1500, while the Swiss Federation of Trade Unions backed a target near the 1.4000-level.

The article notes that the SNB may initially set a target level that is slightly above 1.1000 francs per euro.

SNB spokesman Walter Meier declined to comment on the issue.

Meanwhile, Germany's government spokesman Steffen Seibert said earlier that the introduction of euro bonds will not be on the agenda when German Chancellor Angela Merkel and French President Nicolas Sarkozy meet on Tuesday.

Seibert added that markets should not expect a major breakthrough when Merkel and Sarkozy meet on Tuesday.

Elsewhere, the euro was also up against the yen, with EUR/JPY advancing 1% to hit 110.39.

Earlier Monday, data showed that Japan's economy contracted by 0.3% in the second quarter, below expectations for a 0.9% decline, signaling the country is rebounding from March's earthquake disaster.

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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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