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The Swiss National Bank left the Libor Rate unchanged, and more importantly left the EUR/CHF floor at 1.20.  

While this was widely expected, the higher forecasts mean that the franc has a bit more room to rise, and this may weaken the euro, also against other currencies.

Swiss Policy

The SNB upgraded the 2012 GDP  forecast from  0.5% to 1% – double. On the other hand, they deepened the deflation forecasts from a drop of 0.3% in CPI to a drop of 0.6%.

Fighting deflation was one of the reasons for the massive and successful intervention of September 2011. The other reason was to help exporters grow. The strong franc hurt exports.

While CPI is in the deflation woods, the higher growth forecasts could help the franc strengthen. In addition, this confidence by the SNB could tease some traders to challenge the SNB peg on EUR/CHF.

EUR/CHF and EUR/USD

In recent months, EUR/CHF has traded in a narrow range, around 1.2050 – very close to the 1.20 peg. The pair moved up towards this decision and almost reached 1.2150, but fell back down.

The decision also strengthened the Swiss franc against the dollar. No raise of the floor and higher forecasts could also have an impact on EUR/USD – a weakening effect.

Forces moving EUR/USD come mostly from the debt crisis and the American recovery prospects, but also the Swiss policy has an impact.

When the SNB first introduced the policy, EUR/USD got a “Swiss sugar rush”, but this faded away  afterwards. With no fresh sugar from the SNB, there is a bit less support under EUR/USD.

For more on EUR/USD, see the euro to dollar forecast.