Bloomberg News

Swiss Franc Weakens Versus Euro Amid Widening Band Speculation

September 20, 2011

Sept. 20 (Bloomberg) -- The franc fell the most in two weeks against the euro on speculation the Swiss National Bank will widen the currency’s trading band to help protect exports.

Switzerland’s franc depreciated versus all but one of its 16 major peers, declining for a third day against the dollar. The franc’s decline against the euro was the steepest intraday loss since the central bank imposed a ceiling on the franc for the first time in more than three decades on Sept. 6. Swiss central bank spokesman Walter Meier in Zurich declined to comment when asked about speculation that policy makers may adjust the franc ceiling.

“There is a rumor that the Swiss National Bank is going to raise the lower limit of the band to 1.25 and as a consequence we’ve seen euro-Swiss come up,” said John McCarthy, managing director of currency trading at ING Groep NV in New York. “That talk is the factor behind the Swiss right now. In this market people are nervous enough that anything can get them to jump.”

The franc slid as much as 1.1 percent versus the euro to as weak as 1.2214 per euro before trading at 1.2164 as of 2:52 p.m. in London. Against the dollar, the franc weakened 0.9 percent to 89.04 centimes.

Switzerland’s currency plunged the most ever against the euro on Sept. 6 after the central bank said it would no longer tolerate an exchange rate below the minimum of 1.20 francs per euro. The SNB said it would purchase “unlimited quantities” of foreign currencies including the euro to stop the franc from strengthening beyond that level.

‘Jumpy’ Market

“The last time there was a rumor that the Swiss central bank would introduce a currency peg it turned out to be true months later,” said Steven Barrow, head of Group of 10 currency strategy at Standard Bank Plc. “That’s got the market a bit jumpy.”

The intervention, last introduced in 1978 to stem gains versus the Deutsche mark, came after the central bank’s August liquidity boost to the money market and the reduction of interest rates to zero failed to curb gains in the currency. The franc surged to a record 1.0075 against the euro on Aug. 9 as investors flocked to purchase the currency as a haven from financial turmoil sparked by the euro-region debt crisis.

--With assistance from Simone Meier in Zurich and Allison Bennett in New York. Editors: Matthew Brown, Peter Branton

To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net

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


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