Swiss Franc Strengthens as SNB Disappoints Investors

NEW YORK (Dow Jones)-The Swiss franc extended its gains against the euro and dollar after the Swiss National Bank came out with a plan to stymie the franc's rise, which failed to satisfy investors who were expecting more aggressive measures.

The euro plunged as low as CHF1.1224 as the SNB said it would increase its liquidity measures by CHF80 billion to CHF200 billion - but didn't peg the franc to the euro as many market participants were expecting. The franc gave back some of its gains against the dollar in U.S. hours, trading at CHF0.7900 late Wednesday, from CHF0.7962 Tuesday according to CQG.

The Swiss economy needs more than just intervention, said a senior currency strategist at Royal Bank of Scotland Paul Robson, it needs a global economic recovery. Investors are flocking to the Swiss franc as a stable asset to hold in the midst of a series of global economic scares. 

Tuesday's summit between French President Nicolas Sarkozy and German Chancellor Angela Merkel was the latest ripple, as the proposals to tackle Europe's sovereign debt crisis were viewed in the market as too mild. "It's too small to handle the flood of scared capital," Robson said of the intervention plan outlined by the SNB on Wednesday. "The fortune of the franc is probably more down to Frankfurt and Paris."

Meanwhile, as the dollar fell against the franc, euro and British pound, higher commodity prices lifted growth-sensitive currencies like the Aussie dollar, New Zealand kiwi and most European emerging currencies. Late Wednesday, the euro was at $1.4427 from $1.4407 late Tuesday, according to EBS via CQG. The dollar was at Y76.60 from Y76.82, while the euro was at Y110.50 from Y110.68. The U.K. pound was at $1.6544 from $1.6460.

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was unchanged at 74.010.

The euro tested session highs against the greenback at $1.4518 from $1.4475 following higher-than-expected U.S. producer price data, which climbed 0.2%, above the 0.1% forecast.

"The market has already priced in a bearish outlook for global economic growth, says Robson. "But there are concerns that the market is talking itself into another slowdown that may or may not have been driven by supplied disruption."

The Japanese yen traded uncomfortably close to all-time low of Y76.25, while currency markets continue to monitor the yen's movements to see if the Bank of Japan will intervene.