Investing.com - The euro pulled back from one-week lows against the Swiss franc on Thursday after the Swiss National Bank maintained its cap of 1.20 per euro and reiterated that it was prepared to defend the level if necessary.
EUR/CHF was trading at 1.2080 following the announcement, still down 0.20% for the day but off lows of 1.2066 struck ahead of the SNB statement.
The Swiss franc was boosted after the SNB stopped short of taking fresh measures to stem the appreciation of the franc.
Switzerland’s central bank kept its interest rate target unchanged at zero to 0.25% and also kept the exchange rate floor unchanged at 1.20 francs per euro.
In its rate statement the SNB said it “will continue to enforce the minimum exchange rate with the utmost determination. For this purpose, it is prepared to purchase foreign currency in unlimited quantities. If necessary, it will take further measures immediately"
The bank said the economic outlook has deteriorated considerably and the Swiss franc is “still high.”
The bank cut its inflation forecast for 2015 and 2016, and said it now expects 2014 GDP growth of 1.5%, down from 2% in June.
The SNB imposed the 1.20 per euro exchange rate floor in September 2011 in order to ward off the risk of deflation and a recession as a result of the franc’s rapid appreciation.
The franc has approached that level in recent sessions as the euro weakened after the European Central Bank unexpectedly cut rates to record lows on September 4 and unveiled new easing measures in a bid to shore up inflation.
The franc gained approximately 0.9% against the euro during August, prompting the SNB to reiterate that it would defend its cap on the franc by buying unlimited amounts of foreign currency if necessary.
The franc also gained ground against the dollar, with USD/CHF down 0.45% to 0.9369, off the more than one year highs of 0.9432 struck earlier in the session.
Demand for the dollar continued to be underpinned after the Federal Reserve offered fresh guidance on its plans to raise interest rates after its monetary policy meeting on Wednesday.
The Fed statement reiterated that it expects rates to remain on hold for a "considerable time", after its bond purchasing program ends, but it outlined in more detail how it will start to raise short term interest rates when the time comes.
The Fed cut its monthly asset purchase program by another $10 billion, keeping the program on track to finish next month.