Bloomberg News

Franc Gains Most in 3 Months Versus Euro After SNB Maintains Cap

December 28, 2011

Dec. 15 (Bloomberg) -- The franc surged the most in three months against the euro after the Swiss National Bank refrained from introducing further measures to weaken the exchange rate at a policy meeting today.

The Swiss currency appreciated versus all of its 16 major counterparts, rising 2 percent against the South Korean won and 1.7 percent versus Taiwan’s dollar. SNB policy makers led by Philipp Hildebrand kept the franc’s ceiling at 1.20 per euro at the meeting in Zurich, in line with the estimates of nine out of 13 economists in a Bloomberg News survey. The SNB also maintained its benchmark interest rate at zero.

“There had been a growing sense that the SNB may well decide not to lift the ceiling, in part because of the problematic euro,” said Michael Derks, a market strategist at FXPro Financial Services Ltd. in London. The franc is unlikely to rise further because “the dollar is the preferred safe-haven currency, the Swiss safe-haven demand has been diminished by the SNB’s previous actions, and the economy is now most likely in recession,” he said

The franc gained 1.1 percent to 1.2238 per euro at 4:23 p.m. London time, after climbing as much as 1.3 percent, the most since Sept. 5. The currency appreciated 1.4 percent to 94.03 centimes per dollar. It fell to 95.48 centimes before the central bank’s announcement, the weakest since Feb. 17.

The SNB has defended the exchange-rate ceiling since it was established in September to halt a strengthening of the currency as investors sought a haven from the euro-area debt crisis.

‘Further Measures’

“The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require,” Hildebrand said, as he and fellow policy makers Thomas Jordan and Jean-Pierre Danthine briefed journalists in Bern after the meeting. The credibility of the currency’s ceiling is “solidly anchored in the market,” he said.

The franc is “still high” and the economy may stagnate in the current quarter, the central bank chief said. The minimum exchange rate helped correct “the massive overvaluation” of the franc, lowering risks for the Swiss economy, he said.

Deteriorating economic data and comments from lawmakers had prompted speculation the SNB would further weaken the franc because a strong currency is seen as a barrier to trade and economic growth in Switzerland.

The government on Dec. 13 lowered its forecast for economic growth this year to 1.8 percent from a September prediction of 1.9 percent. Growth in 2012 is estimated at 0.5 percent, from 0.9 percent. The economy expanded 0.2 percent last quarter, the least in two years, the State Secretariat for Economic Affairs said Dec. 1. Consumer prices fell 0.5 percent in November.

‘Knee-Jerk Reaction’

“The statement went pretty much as expected with concern expressed over the pace of slower growth and the decline in inflation,” Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva, wrote in an investor note. “We suspect that the knee-jerk reaction in euro-Swiss will be short lived as most believe that the SNB will re-peg in the first quarter of 2012.”

The Swiss currency has weakened 3.1 percent in the past three months, paring its gain for the year to 1.4 percent, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies.

The franc, seen as a haven in times of turmoil, gained as much as 37 percent against the euro in the year before the SNB imposed the limit on Sept. 6, as European leaders failed to contain the debt crisis. The currency appreciated to a record 1.0075 per euro on Aug. 9.

--With assistance from Klaus Wille in Zurich. Editor: Matthew Brown

To contact the reporter on this story: David Goodman in London at

To contact the editor responsible for this story: Daniel Tilles at

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