Bloomberg News

Swiss Franc Slides to Post-Cap Low as Haven Flows Abate

January 17, 2013

The Swiss franc fell against the euro to the weakest since the central bank imposed a cap on the currency in 2011, as signs Europe’s debt crisis is easing sapped demand for haven assets.

The Swiss currency declined for the fifth time in six days after European Central Bank President Mario Draghi said last week there are strong capital inflows in the region and as Spanish and Italian government bonds advanced this month. Zuercher Kantonal Bank said last week it reserved the right to set negative interest rates on franc deposits for its retail customers. The Swiss National Bank capped the currency at 1.20 per euro in September 2011 to protect exporters.

“The crisis is being priced out more and more, which means that the Swiss franc is less in demand,” said Antje Praefcke, a senior currency strategist at Commerzbank AG in Frankfurt. “It should remain under pressure and I think the SNB is probably pleased to see that.”

The franc fell 0.7 percent to 1.2461 per euro at 4:14 p.m. London time after losing as much as 0.9 percent to 1.2485 per euro, the weakest since May 2011. It surged to 1.008 per euro on Aug. 9, 2011. The Swiss currency depreciated 0.2 percent to 93.25 centimes per dollar. It touched 93.55 centimes, the weakest since Dec. 11.

‘Fear’ Abates

Switzerland’s franc has tumbled 2 percent this year, the second-biggest decline after the yen, which slid 3.3 percent, among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

Implied volatility for the franc versus the euro, based on one-month options, rose as high as 7.46 percent today, the most since December 2011.

“People are going back into risk assets,” Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London, said in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson. “People were so concerned about risk and were holding the Swiss franc as a highly liquid asset, now the fear has abated and that’s going to pull the euro up against the franc.”

Swiss government bonds declined. The 10-year yield rose five basis points, or 0.05 percentage point, to 0.702 percent after reaching 0.704 percent, the most since May 2.

The yield on the nation’s three-year notes climbed above zero for the first time since May 11.

The SNB said today it expects a full-year profit this year of about 6 billion francs after it benefited from foreign- currency investments and a rising gold price.

Foreign-currency reserves contributed 4.7 billion francs and valuation gains on its gold holdings added 1.4 billion francs, the SNB said in a statement, citing an initial estimate.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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