Tuesday, 22 January 2013 16:48
LONDON: The Swiss franc has scope to weaken to 1.30 against the euro in the first quarter of 2013 as investors' cautious optimism towards the euro zone reduces the franc's appeal as a safe haven.
Huge bets that relied on the franc holding firm were built up as the currency spent month after month pinned near the 1.20 ceiling imposed by the Swiss National Bank since September 2011.
But a marked weakening in the franc in the past week is threatening the profitability of these positions, prompting traders to scale back their franc holdings and generating a scramble for protection in the options market.
These adjustments will take far more than a few days to work through the foreign exchanges, not least because liquidity is sometimes proving to be a problem when large amounts of Swiss francs have to be traded.
And the reasons for the euro to extend its gains against the Swiss ...