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Swiss franc rallies as SNB declines to match US rate cut

London

THE Swiss franc rallied against its major peers on Thursday and is on track to post its biggest daily jump versus the greenback in a month after the Swiss National Bank (SNB) declined to match the European Central Bank and the US Federal Reserve in easing policy.

The SNB kept its policy rate unchanged at -0.75 per cent, as expected by most analysts in a Reuters poll.

It maintained the rate it charges on the excess cash it holds for commercial banks at -0.75 per cent, though it raised the threshold at which the negative rate charges kick in.

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"The SNB was a surprise and they will focus on FX intervention," said Kenneth Broux, a strategist at Societe Generale based in London.

"The announcement on the threshold indicates a greater effort to offset the negative rate impact on bank profitability."

The franc jumped half a per cent against the greenback to US$0.9908 and rallied more than 1 per cent versus the Australian dollar, a currency pair typically favoured by hedge funds.

Even the Norwegian kroner briefly rallied after the central bank raised its main interest rate by a quarter percentage point as expected but said further policy tightening had become less likely amid a global slowdown.

Against the dollar, the kroner which had gained 0.2 per cent after the decision, erased gains and was broadly flat on the day at 8.94 kroner per dollar.

Elsewhere, the Japanese yen held on to earlier gains after the Bank of Japan kept interest rates on hold, while the dollar struggled to move higher despite the Federal Reserve offering mixed signals about the path for further easing.

The Bank of Japan kept monetary policy steady - as expected - and signalled the chance of expanding stimulus as early as its next policy meeting in October by issuing a stronger warning over the risks threatening the economy.

The yen rose to as high as 107.79 yen per dollar before settling at 108.06, up 0.4 per cent on the day.

The dollar dipped slightly against a basket of currencies, as it struggled to gain despite a more hawkish than forecast tone from Wednesday's Federal Reserve meeting.

The US central bank, on a seven-three vote, lowered the Fed funds target rate to a range of 1.75 per cent to 2.00 per cent "in light of the implications of global developments for the economic outlook".

The Australian dollar had its worst day in a month as expectations for more central bank rate cuts leapt after joblessness hit a one-year high.

The Aussie dropped 0.7 per cent to a two-week low of US$0.6782. REUTERS