An exchange traded fund indexed to the Swiss franc’s movements against the U.S. dollar was set for a sharply lower open Tuesday after the Swiss National Bank set a floor on the euro/franc exchange rate.
The U.S. dollar was up 8% versus the franc on Tuesday morning on the news. The SNB said it would “no longer tolerate” a euro/franc exchange rate below 1.20.
“The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development,” the central bank said.
“The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities,” according to a statement. “If the economic outlook and deflationary risks so require, the SNB will take further measures.”
CurrencyShares Swiss Franc Trust (NYSEArca: FXF) is up nearly 20% this year as the currency has surged on the safe-haven trade.