Central bank’s withdrawal of peg against euro sends franc and other nations’ money soaring against Europe’s common currency.

Switzerland's central bank has dropped a bombshell on foreign exchange markets by withdrawing its currency peg against the euro, driving the Swiss franc sharply higher and pushing other currencies, such as the New Zealand dollar, to record highs against Europe's long-suffering common currency.

The Swiss franc, one of the world's most preferred safe haven currencies, has been keenly sought over the past few years as eurozone economies stagnated and as the sovereign debt problems of member countries such as Greece frayed the euro mechanism at the edges.

The kiwi, which had already been gaining against the euro, hit another post-float high of 67.55c on the move by the Swiss National Bank (SNB), as markets prepared for what many expect will be more monetary easing measures from the European Central Bank (ECB) next week.

SNB chairman Thomas Jordan denied the move amounted to a "panic reaction", saying the cap had been scrapped because it was unsustainable. "If you decide to exit such a policy, you have to take the markets by surprise," Jordan said.

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The strongly defensive characteristics of the Swiss franc have made the currency appreciate sharply, to the point where it threatened to strangle Swiss exports. In 2011, the bank adopted a policy of negative interest rates - charging on Swiss franc deposits.

At the same time, the bank has been intervening in the foreign exchange markets by selling francs and buying euros - building up huge euro reserves in the process - to cap the currency at 1.20 francs per euro.

"Last night, they said they are not going to do that any more which removed a major obstacle for the Swiss franc appreciating," said Westpac senior market strategist Imre Speizer.

He said the market, over time, had started to view the Swiss franc as an easy, one-way trade.

Provided the SNB was keeping the franc capped, speculators could sell francs - and buy another high yielding currency against it.

The so called "positive carry trade" worked as long as the Swiss franc did not change and the other currency did not depreciate.

"People who were suddenly short the Swiss franc had to suddenly buy it back and that produced a rally of historic proportions," Speizer said.

When the cap came off, the franc rallied by 30 per cent against the euro in what dealers said was the single biggest announcement to hit the market in several years.

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The SNB said the cap was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets.

"This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate," the Swiss bank said.

"The economy was able to take advantage of this phase to adjust to the new situation," it said. "Recently, divergences between the monetary policies of the major currency areas have increased significantly - a trend that is likely to become even more pronounced.

"The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar."

Financial markets saw SNB's comment on monetary policy as a thinly veiled reference to the ECB leading up to next week's policy meeting.

"Clearly the SNB has an expectation that there will be a sizeable quantitative easing taking place in Europe, which would have put additional pressure on euro/Swiss franc floor to the point where the SNB decided it was not worth defending it," said Bank of NZ currency strategist Raiko Shareef.

Only days ago, SNB officials had stood by the 1.20 francs per euro cap, introduced in 2011 at the height of the eurozone crisis to fend off deflation and a recession.NZME.