Bloomberg News

Swiss Franc Gains as Investors Take Advantage of Recent Declines

October 10, 2011

Oct. 10 (Bloomberg) -- The franc strengthened, appreciating most against the dollar and the yen, as investors took advantage of recent weakness in the Swiss currency.

The franc rose against all 16 of its major peers tracked by Bloomberg, gaining the most in almost eight weeks versus the dollar. Switzerland’s currency has weakened 0.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track a basket of 10 developed-nation currencies. It fell to the weakest since April against the dollar last week after the Swiss National Bank decided on Sept. 6 to cap the franc’s strength at 1.20 per euro and deter investors using it as a shelter.

“There’s some buying of the franc to cover short positions,” said Michael Derks, chief strategist at FXPro Financial Services Ltd. in London. “Currencies are being driven by the reassurances given about Europe’s banks. If we continue to see a rally in risk assets then the dollar will likely weaken further.”

The franc appreciated 2.6 percent to 90.31 centimes per dollar at 4:28 p.m. London time. That’s the biggest one-day gain since Aug. 9. It strengthened 0.5 percent to 1.2344 per euro.

The Swiss Market Index, a measure of the biggest and most actively traded companies, advanced 1.2 percent. European stocks rose and the yen fell against the dollar.

Bank Plan

German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to deliver a plan to help banks and repeated a commitment to keep Greece in the single-currency area.

The franc’s relative strength index against the dollar fell below 30 last week, the level that some traders say indicates that it is oversold and is likely to rebound. It was 38.73 today from 29.16 last week.

Gains in the franc will probably be limited because of the central bank’s cap, Derks and Beat Siegenthaler, a currency strategist at UBS AG in Zurich said. SNB President Philipp Hildebrand has pledged to defend the franc ceiling with the “utmost determination” by purchasing “unlimited quantities” of currencies if needed.

“The perceptions of the Swiss franc as a haven have clearly eased,” after the central bank’s intervention in the currency markets, said Siegenthaler. “It is clear that the 1.20 level will be defended.”

The central bank may raise its ceiling for the franc to 1.30 per euro, according to the private-banking unit of JPMorgan Chase & Co.

“We remain of the view that a further upward adjustment in the ceiling is both justified and likely,” Audrey Childe- Freeman, global head of currency strategy at JPMorgan Private Bank in London, said in an e-mailed research note today. A ceiling of “1.25 has recently been mentioned as a new possible reference level, but that would still leave the Swiss franc largely overvalued. Instead, the monetary authorities may set a more ambitious target, at say 1.30.”

--Editors: Mark McCord, Peter Branton

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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


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