The Swiss National Bank said in a statement that the measure, introduced in September 2011, “protected the Swiss economy from serious harm” but is no longer justified.
The bank said the cap, which effectively pegged the Swiss franc to the euro, meant that the franc has dropped sharply against the US dollar in line with the euro’s recent fall in the value.
Pressure has intensified on the Swiss franc since the European Central Bank hinted that it would begin flooding the eurozone with cheap credit under a programme of quantitative easing (QE), a move that would immediately devalue the euro against other currencies.
A ruling earlier this week by the adviser to the European Court of Justice that the ECB was free to press ahead without legal challenge intensified speculation that QE was imminent.
The growing US economy has also pushed the dollar higher, exacerbating the widening gap between the dolar and euro.
With the likelihood of money flooding out of the eurozone in search of higher interest rates, the SNB also cut its deposit rate by 0.5 percentage points to -0.75 as a deterrence to investors thinking of Zurich as an alternative home for their investment savings.
Manufacturers in Switzerland’s northern belt are likely to feel the impact first as their exports to Germany and other eurozone countries become more expensive.
Julien Manceaux, analyst at ING Financial Markets, said the cut in interest rates “ensures that the appetite for the franc as a safe-haven will remain limited, avoiding a negative shock for the Swiss economy”.
He said: “This should work at least in the near term. Whether, this will still be the case after ECB’s meeting on 22nd January and a likely QE announcement remains to be seen.”
guardian.co.uk © Guardian News and Media Limited 2010