Europe

Euro devaluates as Switzerland stops minimum exchange rate policy

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The euro has experienced the highest devaluation after Switzerland decided to give up its minimum exchange rate policy.

The Swiss National Bank (SNB) announced Thursday that it no longer pursues the strategy for keeping the rate of 1.20 Swiss franc per euro as the European currency has started to decline in the face of US dollar.

The decision quickly left its impact on euro, which dropped to USD 1.1575, down from the previous rate of USD 1.1735. The decision also triggered a lower demand for euro in the market compared to the previous days.

The minimum exchange rate policy, initiated by SNB in September 2011, was meant to protect Switzerland’s booming export sector by preventing the national currency from becoming too strong.

The SNB has announced in a new statement that it no longer needs to pursue the strategy as franc is automatically devaluated against dollar when euro keeps its continued depreciation. The statement on Thursday said maintaining the policy is no longer justified.

Economists were increasingly concerned that SNB’s continued buying of foreign currencies could make it more vulnerable to fluctuations in the market. The bank has reportedly accumulated hundreds of billions in foreign currency assets, making it hugely susceptible to ups and downs in the exchange rate.

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