ZURICH, Dec 18 — Switzerland’s franc weakened the most in 18 months versus the euro after the nation’s central bank introduced negative interest rates to defend the currency’s cap.

The shared currency fell for a second day against the dollar as the Swiss National Bank decision boosted speculation the European Central Bank will expand stimulus measures next year. A gauge of the dollar reached a five-year high amid signals the Federal Reserve will raise interest rates next year. Australia’s dollar rallied from a four-year low as rising Asian stocks spurred demand for higher-yielding assets. Brazil’s real rose a second day with emerging-market peers.

The SNB’s move “is a function of the fact that the ECB is likely to introduce sovereign quantitative easing,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York, said by phone. “This is just one step that will likely lead to SNB foreign-exchange intervention. If they want to maintain that policy floor, that’s the logical next step.”

The franc depreciated 0.3 per cent to 1.20435 per euro as of 10:01 a.m. New York time after dropping as much as 0.7 per cent to 1.20974, the weakest level since Oct. 10. The intraday decline was the most since May 2013.

The dollar appreciated 0.4 per cent to 119.15 yen after surging 1.9 per cent yesterday, the biggest advance since October 31. The US currency appreciated 0.5 per cent to US$1.2282 per euro and touched US$1.2266, the strongest since December 8. The yen was little changed at 146.42 per euro.

Dollar gains

The Bloomberg Dollar Spot Index climbed 0.1 per cent to 1,122.38 after gaining 0.9 per cent yesterday. The gauge, which tracks the currency against 10 major peers, touched 1,124.45, the highest level since March 2009 on a closing basis.

JPMorgan Chase & Co’s Global FX Volatility Index climbed to 10.09 per cent, the highest level since September 2013.

Australia’s dollar rose as the MSCI Asia Pacific Index of stocks advanced as much as 1.1 per cent, following gains in US shares yesterday. The Aussie added 0.8 per cent to 81.84 US cents after falling to 81.07 cents yesterday, the weakest level since June 2010.

The real jumped after the Fed said it would be patient on the timing of raising interest rates, adding to demand for higher-yielding assets from emerging markets. The real climbed 2 per cent to 2.6612 per dollar.

A gauge of 20 developing-economy currencies rose a second day after plunging on December 16 to the lowest level since 2002.

Negative rates

The franc weakened against all of its 16 major peers as the Zurich-based SNB introduced a negative deposit rate for the first time since the 1970s, saying it was prepared to buy unlimited foreign currency to shield the 1.20-per-euro cap and take further measures if needed.

The Swiss currency appreciated to within 0.07 per cent of the cap yesterday, reaching the strongest level since September 2012. Pressure on the cap has bolstered speculation the ECB will start a large-scale sovereign-bond buying program, a measure that may weaken the euro against its peers.

SNB President Thomas Jordan cited turmoil in Russia as a “major contributory factor” to its rate decision.

“The other thing undermining the attempts to weaken the Swiss franc is the ongoing Russian crisis and emerging-market selloff—the franc remains a safe haven,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. “It’s going to be a very tough environment for the SNB to push euro-Swiss up significantly.”

Ruble slides

The ruble gained a second day as Russia’s central bank announced a range of measures designed to stabilize the financial system, a day after it unexpectedly increased the key interest rate to 17 per cent from 10.5 per cent.

Russia’s currency added 1.4 per cent to 59.3890 per dollar after depreciating to a record 80.10 on December 16. It has tumbled 45 per cent versus the greenback this year, the biggest loss after Ukraine’s hryvnia among 174 currencies tracked by Bloomberg.

The dollar has gained against all but 15 global currencies in 2014 on speculation the Fed would be first major central bank to lift borrowing costs.

Fed Chair Janet Yellen did nothing to dispel those thoughts yesterday, indicating after the central bank’s policy meeting that it was on course to raise interest rates next year even as the official statement said policy makers would be patient. The key rate has been held at zero to 0.25 per cent since 2008.

“It was a nifty balancing act,” with a dovish statement balanced by more hawkish comments from Yellen, said Credit Agricole’s McCormick. “The takeaway was that the Fed will hike interest rates in 2015.”

The dollar has surged 13 per cent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 0.7 per cent and the yen tumbled 5.2 per cent. — Bloomberg