Growing pessimistic sentiment vis-à-vis the economy led to lower capital market yields, declining stock valuations and a weaker US dollar. The general pattern of activities on the financial markets was and still is characterised by a marked parallelism in price fluctuations. On the one hand, this is a reflection of the synchronisation of the current and expected economic development which has been apparent for several quarters and which in turn leads to parallel monetary policy reactions. On the other hand, the widespread globalisation of capital market processes has considerably intensified - at the expense of country-specific differentiations - the impact of the valuation factors effective worldwide. The shock of 11 September The attack of 11 September hit the world economy and the financial markets in a state of instability. It did not trigger any new trends, but magnified developments which were already under way. Business and consumer confidence suffered a severe blow, which further dimmed economic prospects in the US and in Europe. The sudden increase in risk aversion led to drastic corrections on all major stock exchanges and to a veritable flight into the Swiss franc. The record highs the Swiss franc reached on 21 September went in tandem with the stock markets hitting record lows. In response to the rapid and marked appreciation of the Swiss franc, we cut interest rates in an extraordinary move on 24 September. Following this step, and in the course of a broader normalisation of the financial markets, the euro rebounded somewhat vis-à-vis the Swiss franc.
Our currency nevertheless remained strong against the euro. At the end of November, it was quoted at 3.5 % above its average rate during the first eight months of the year. The euro-Swiss franc rate was somewhat more volatile as well. Its volatility in additional currencies now stands at about the same level as previously against the D-mark. On the stock markets, a distinct corrective movement set in even before the end of September. Meanwhile, most stock indices are above the level obtaining on 10 September. Bond yields have increased a little in the last few weeks as well. Both effects can be interpreted as a sign of renewed optimism concerning the economic development in the medium term. In the days after the terror attacks, the resiliency of the financial system was put to a test never before described or even considered in any emergency plan. Payment transactions in US dollars were affected directly. Faced with the possible breakdown of individual banks and parts of the system which are crucial for carrying out transactions, the Federal Reserve - by way of the discount window pumped massive amounts of liquidity into the system. On the basis of a swap agreement, the European Central Bank supplied banks in the euro area directly with dollar liquidity. The National Bank  BIS Review 101/2001  1  was in close touch with the Swiss banks and - should this have been necessary - we would have been in a position to lend support as well.