The dollar and euro posted their best days ever against the Swiss franc on Thursday, jumping as much as 6 percent after falling to record lows this week, as the Swiss National Bank said it could peg the franc to the euro to rein in a soaring currency.
SNB Vice Chairman Thomas Jordan, when asked about temporarily pegging the franc, said the bank was open to measures consistent with long-term price stability. Traders said the euro/Swiss pair could be fixed at 1.15 francs. A proposed peg of the Swiss currency, however, drew criticism from most market participants.
"This is very short term. Intervention or these types of programs where you try to subsidise and try to move a market don't work as the Japanese found out in March when they intervened," said Rodney Johnson, co-portfolio manager at Dent Tactical ETF in Tampa Florida.
In late afternoon trading, the euro was up 5.3 percent at 1.08580 francs, compared with a record low of 1.00750 hit on Tuesday. It rose as high as 1.09220 francs on Thursday, up more than 6 percent, its best trading day. The euro though was still down 0.2 percent this week and 13.1 percent lower so far this year. Implied volatility, a measure of the market's expectations of future movements, slid on Thursday after the plunge in the Swiss franc, with one-month euro/franc implied vols at 23.40 percent. The currency pair's one-month vols surged to a record 32 percent on Tuesday.
The dollar was last up 4.9 percent to 0.76260 franc, also its best one-day gain, after hitting a high of 0.76895. Earlier in the week, the dollar plunged to a record low of 0.70676 on trading platform EBS. Deutsche Bank's global head of G10 FX strategy Alan Ruskin said anchoring a currency on a fairly unstable euro, which is currently beset by the eurozone's fiscal crisis, could end up destabilising the Swiss franc itself.
Sharp gains in the euro versus the Swiss franc further helped lift the eurozone common currency against the dollar. The euro last traded up 0.4 percent at $1.42247. The yen, meanwhile, hovered near a record high against the dollar as investors continued to sell riskier assets, fuelling speculation Japan may step in to stem the yen's gains.
The dollar fell as low as 76.302 yen on trading platform EBS, within striking distance of an all-time trough of 76.25 yen set in mid-March. It last traded little changed on the day at 76.830. Earlier in London, the dollar briefly jumped above 77 yen from 76.30 yen, after dealers cited talk that the Bank of Japan was in the market checking the exchange rate for dollar/yen. That is usually an indication Japan is getting ready to buy more dollars to weaken the yen.