Euro dives vs dollar after Switzerland removes cap

A man looking in Bern, Switzerland, at a board showing currency exchange rates on Jan 15, 2015. The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the Swiss franc, sending the safe-haven currency soarin
A man looking in Bern, Switzerland, at a board showing currency exchange rates on Jan 15, 2015. The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the Swiss franc, sending the safe-haven currency soaring against the euro and stocks plunging amid fears for the export-reliant Swiss economy. -- PHOTO: REUTERS

NEW YORK (AFP) - The euro sank sharply against the US dollar Thursday after Switzerland surprised investors by removing its currency's floor against the euro, sending the Swiss franc soaring.

The Swiss National Bank announced earlier in the day it was abandoning the minimum rate of 1.20 francs against the euro, a ceiling it had imposed three years ago to hold down the value of the franc against the currency of the 19-nation euro zone, of which it is not a member.

Minutes after the Swiss central bank said it was pulling away the floor, the safe-haven Swiss franc strengthened almost 30 per cent against the euro.

By late Thursday, the euro was fetching 1.0035 Swiss francs, down about 16 per cent from the same time Wednesday.

"The Swiss National Bank's decision to remove the EURCHF Sf1.2000 floor is a monumental development for FX markets," said Mr Christopher Vecchio, currency analyst at DailyFX, in a market note.

"Nothing more needs to be said than the fact that this is a complete surprise for most (if not all) market participants."

Even the managing director of the International Monetary Fund, Ms Christine Lagarde, called the move in a CNBC television interview "a bit of a surprise". Ms Lagarde also said that she had not been informed in advance of the Swiss decision.

"I find a bit surprising that he didn't contact me," she said about the chairman of the Swiss National Bank.

"I would hope that it was communicated with other colleagues of central banks. I'm not sure it was," she added.

Analysts cautioned that the forex market would likely be highly volatile in the wake of the Swiss action and ahead of the European Central Bank meeting next Thursday.

There is widespread speculation that the ECB will announce a large asset-buying programme, or quantitative easing, to counter deflation and weak growth in the euro zone.

In approaching parity with the euro on Thursday, the Swiss franc also rose against the US dollar, to 0.7406 franc, its strongest level against the greenback since August 2011.