Bloomberg News

Swiss Franc Falls on Tighter Cap Speculation; Dollar Fluctuates

September 20, 2011

Sept. 20 (Bloomberg) -- The Swiss franc fell against the euro by the most since the Swiss National Bank put a ceiling on its currency’s strength and dropped against the dollar amid speculation policy makers may impose a tighter target.

The dollar fluctuated against the euro as the Federal Reserve meeting is forecast to produce additional economic stimulus and the International Monetary Fund predicted severe global growth repercussions if Europe fails to contain the sovereign debt crisis. Swiss central bank spokesman Walter Meier in Zurich declined to comment when asked about speculation that policy makers may adjust the franc ceiling against the euro.

“The market is scared,” said Yra Harris, chief trader and analyst at Praxis Trading in Chicago. “There’s no question foreign exchange markets are scared of the Swiss bank and what its intention are.”

The franc weakened 0.7 percent to 1.2160 per euro at 5:01 p.m. in New York. It fell 0.6 percent to 88.78 centimes per U.S. dollar.

The euro was little changed at $1.3707. The dollar was little changed at 76.45 yen.

The Swiss central bank imposed a 1.20 ceiling for the franc versus the euro on Sept. 6 with the central bank saying it would defend the level with the “utmost determination.” The SNB doesn’t plan to hold a briefing or issue a statement today, Meier told Bloomberg News by telephone.

Franc Strength

The franc has risen 7.2 percent during the past 12 months among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 2.4 percent and the dollar weakened 5.9 percent.

“People don’t want to fight the Swiss National Bank anymore,” said Kathy Lien, director of currency research with online trading firm GFT Forex in New York. “The big move in the franc is all because of the talk of the Swiss National Bank possibly re-pegging the franc to 1.25 per euro.”

The dollar weakened earlier today against most its major counterparts after the IMF said the European Central Bank should lower interest rates if risks to growth persist. The ECB’s current benchmark rate is 1.5 percent.

The IMF also said the world’s largest economy will expand 1.5 percent this year, down from the 2.5 percent projected in June and lowered its forecast for 2012, citing unresolved debt- reduction concerns and waning confidence among consumers and businesses.

The Dollar Index, which measures the greenback against the currencies of six major U.S. trading partners, fell as much as 0.4 percent before trading at 76.984.

The Fed began its two-day meeting today amid speculation the central bank will act to increase holdings of longer maturities to keep borrowing costs down. The action will do little to help 14 million unemployed Americans find work, according to economists in a Bloomberg News survey.

Fed View

“People are still trying to guess at this point what surprises the Fed is capable of,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut. “For the euro, people were already so far into the negative camp that there not much else but upside. You can argue that after a slew of negative headlines, some things that aren’t so negative can be a relief and give the euro a little bit of a breather.”

Australia’s dollar was the biggest winner against the U.S. currency, rising 0.5 percent to $1.0276.

The Aussie pared a loss of 4 percent this month against the greenback as RBA policy makers failed to discuss lowering the central bank’s 4.75 percent overnight cash rate target, according to minutes of a Sept. 6 meeting released today.

Europe Measure

German investor confidence fell to the lowest in more than 2 1/2 years in September as Europe’s debt crisis and a global slowdown damped the outlook for growth.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 43.3 in September from minus 37.6 last month, the lowest since December 2008. Economists expected a drop to minus 45, according to the median of 37 estimates in a Bloomberg News survey.

Greek Finance Minister Evangelos Venizelos made “good progress” in a second round of talks with the European Union and International Monetary Fund aimed at staving off default, the EU said. A “full mission” will return to Athens next week after his discussions in coming days at the IMF’s annual meeting in Washington, an EU statement said.

The EU comments suggest the next payment for Greece, the latest from a 110 billion-euro ($151 billion) bailout agreed upon last year, is likely to be released next month as Prime Minister George Papandreou fights investor doubts that he can avoid default.

“These days, when it’s not downright negative, it’s seen as positive,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “The trend is still down for the euro. We’re predicting $1.30 for the euro by year-end and that seems to be where it’s heading.”

--With assistance from Timothy R. Homan in Washington and Catarina Saraiva in New York and Garth Theunissen in London. Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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