Bloomberg News

Franc Rises 2nd Day on Bets SNB Will Refrain From Intervention

September 01, 2011

Sept. 1 (Bloomberg) -- Switzerland’s franc rose for a second day against all its major counterparts amid speculation the central bank will refrain from further measures to curb the currency’s advance.

The currency climbed to a one-week high against the euro after a European report showed manufacturing in the 17-nation region shrank more than initially estimated, boosting demand for safer assets. The Swiss government pledged yesterday to spend 870 million francs ($1.09 billion) on an economic stimulus package to help counter the impact of the currency’s “massive overvaluation.”

“The market appears to be testing the resolve of the Swiss National Bank to see if they are going to do more,” said Geoffrey Yu, a currency strategist at UBS AG in London. “Weak data out of the euro zone also supports demand for the franc.”

The Swiss currency appreciated 2 percent versus the euro to 1.14089 at 4:14 p.m. in London, after earlier rising to 1.13317, the strongest level since Aug. 23. The currency climbed 1.2 percent to 79.65 centimes versus the dollar.

The franc surged 2.2 percent against the euro yesterday as the Swiss National Bank refrained from announcing new steps to curb its gains, after intervening or referring to the currency’s strength on the first three Wednesdays of August.

The central bank has sought to limit the franc’s record- breaking rally by cutting interest rates to zero last month, and reducing so-called sight deposits, money that banks can convert immediately to cash, almost sevenfold.

Stimulus Package

Economy Minister Johann Schneider-Ammann said yesterday he doesn’t expect the franc to weaken soon after the government unveiled the stimulus package to support tourism and exports.

The franc has strengthened 11 percent this year, making it the best performer among a basket of 10 major currencies, according to Bloomberg Correlation-Weighted Currency Indexes.

A gauge of European manufacturing based on a survey of purchasing managers in the euro region fell to 49 from 50.4 in July, Markit Economics said. That’s below an initial estimate of 49.7 published on Aug. 23.

Switzerland’s bonds rose after a report showed the nation’s economic growth slowed last quarter to the weakest since the nation emerged from recession in 2009.

Gross domestic product rose 0.4 percent from the first quarter, when it increased a revised 0.6 percent, the State Secretariat for Economic Affairs said in Bern. That’s the worst performance since the third quarter of 2009. Exports slumped 1.3 percent from the previous three months.

Swiss 10-year bond yields fell five basis points to 1.06 percent. Five-year rates slid five basis points to 0.57 percent.

Swiss bonds returned 4.7 percent this year, compared with 5.2 percent from German bunds and 7.2 percent on U.K. gilts, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg.

--Editors: Nicholas Reynolds, Mark McCord

Ed Ballard in London at eballard2@bloomberg.net

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Keith Campbell at dtilles@bloomberg.net


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