Bloomberg News

Switzerland’s Franc Gains Versus Euro as Italian Bonds Slide

August 30, 2011

Aug. 30 (Bloomberg) -- The Swiss franc rose for the first time in three days versus the euro as Italian government securities fell in the wake of a bond auction, boosting demand for the relative safety of Switzerland’s currency.

The franc was little changed against the dollar, having weakened yesterday to its lowest level since July 23, amid speculation Switzerland’s central bank will sustain its efforts to prevent the currency from strengthening. The Swiss National Bank has countered the currency’s gains by boosting liquidity in money markets and increasing cash available to banks.

“They’ve been very active in the swaps market, they’ve been providing a lot of liquidity,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “You have dramatic forces bearing down on euro-Swiss franc” that will keep the central bank on guard, he said.

Switzerland’s currency appreciated 0.4 percent to 1.1793 per euro at 4:38 p.m. in London after reaching 1.19728 yesterday, the weakest level since July 11. The franc traded at 81.65 centimes per dollar, after sliding 2.9 percent over the past two trading days.

The yield on Italian 10-year bonds rose four basis points to 5.12 percent. Today’s auction was Italy’s first since the European Central Bank began buying the nation’s debt to stem the spreading sovereign-debt crisis.

Switzerland auctioned 634.25 million francs of 91-day bills today for an average yield of minus 0.75 percent. Yields on some short-term Swiss securities have turned negative over the past month as investors sacrifice capital for the perceived safety of franc-denominated assets.

Baloise Holding AG, the nation’s third-biggest insurer, today cited the franc’s strength versus the euro as contributing to its 3.4 percent decline in first-half profit.

The dollar may extend its advance against the Swiss franc and rally to as much as 88.50 centimes should it break above a key resistance level at 82.52 centimes, Karen Jones, Commerzbank AG’s London-based head of fixed-income, commodity and currency technical analysis said.

--With assistance from Keith Jenkins in London and Carolyn Bandel in Zurich. Editors: Mark McCord, Nicholas Reynolds

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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