Bloomberg News

Swiss Franc Breaches Euro Currency Limit for a Second Time

April 09, 2012

Swiss bank notes are seen in ascending denominations in this arranged photograph in Morges, Switzerland, on  April 3, 2012. Photographer: Valentin Flauraud/Bloomberg

Swiss bank notes are seen in ascending denominations in this arranged photograph in Morges, Switzerland, on April 3, 2012. Photographer: Valentin Flauraud/Bloomberg

The Swiss franc breached the 1.20 limit versus the euro early in Asian trading today, the second time the barrier has been crossed since Switzerland’s central bank introduced the currency cap on Sept. 6.

The franc reached the strongest level since the Swiss National Bank established the limit to protect exports after investors seeking a haven from the euro-area turmoil drove the currency to a record 1.00749 per euro. It breached the limit for the first time last week as the euro slumped and Spain’s 10-year bond yields posted their biggest weekly gains since January on concern the region’s turmoil is spreading. Most European markets were closed today for the Easter Monday public holiday.

“The move was a blip, but it tells us the market continues to test the floor at times when liquidity is virtually non- existent” amid concern over the European debt crisis, said Sebastien Galy, a senior currency strategist at Societe Generale SA in New York.

The Swiss currency touched 1.19962 at 8:36 p.m. Zurich time yesterday before trading at 1.20128 at 5:46 p.m. today. It was 0.2 percent weaker at 91.95 per dollar. The euro fell 0.3 percent to $1.3063.

SNB Challenge

The central bank declared its determination to fight any further attacks after the franc breached the ceiling on April 5 for the first time. The central bank acted to stem that advance, according to Credit Suisse Group AG. Walter Meier, a spokesman for the SNB, declined to comment when contacted by Bloomberg News today.

“The SNB is being challenged on a day-to-day basis because the euro is weakening, helped by continuing worries regarding Spain and ever-lower yields in the core of Europe versus Switzerland,” said Galy. “So far it hasn’t worked and that is good news, given very heavy positioning below the 1.20 floor.”

Swiss 10-year bond yields were at 0.82 percent on April 5, while similar-maturity German bonds, the region’s benchmark government securities, yielded 1.74 percent. Bunds were at 1.65 percent today.

The yield on Spanish 10-year bonds climbed 43 basis points last week after Prime Minister Mariano Rajoy warned on April 4 his country faces “extreme difficulty” as it struggles to borrow in financial markets and after the International Monetary Fund said the nation faces “severe” challenges.

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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