LONDON (Dow Jones)--The Swiss franc has fallen sharply against both the dollar and the euro, after the Swiss National Bank cut its inflation forecasts--a nod to the impact of the strong currency.
The dollar shot up to over CHF1.01 from CHF1.0005, while the euro jumped to CHF1.3220 from CHF1.3090.
The central bank kept its key interest rate on hold, as expected, with the key three-month Libor band between 0% and 0.75%, and it made no comment on the Swiss franc during its phone conference.
"The strong Swiss franc is still shaping the SNB's monetary policy," said Felix Brill, chief economist of Wellershoff & Partners in Zurich, saying that no rate hike by the bank is in sight in the foreseeable future.
The Swiss economy is relatively strong, and the franc acts as a magnet to investors in times of stress, making it a top pick for many.
The SNB stepped back from an aggressive campaign of intervening to hold down the super-strong franc in June, saying that it would reenter the market only if it saw fresh signs of deflation--a trend that is exacerbated as a strong currency makes imports cheaper.
In trimming its inflation forecasts, to 0.7% from 0.9% for this year, and to 0.3% from 1% in 2011, it has offered a sign that it may be prepared to reenter the market sooner than many traders had previously expected.
The dollar recently dipped below parity against the franc for the first time since late 2009, sinking as far as CHF0.9933 earlier this week as nerves over the U.S. economy intensified. The euro has edged up from its all-time low of CHF1.2765 against the franc, last seen Sept. 8, but it remains unusually weak on long-term basis.
Now, "the Swiss franc is getting crushed," said Marc Chandler, an analyst at Brown Brothers Harriman in New York. Chandler added that this is good news for many borrowers in Eastern Europe, who are still repaying old franc-denominated loans.