LONDON: The Swiss franc struck a 26-month high against the euro on Friday, after growth data from the euro zone's two biggest economies failed to cool bets for more monetary easing from the European Central Bank.
Germany narrowly dodged recession, with gross domestic output up 0.1 percent in the third quarter, in line with the median forecast in a Reuters poll of economists.
France, the euro zone's second biggest economy, eked out a surprising 0.3 percent expansion in the quarter.
The euro fell to 1.2015 francs, its lowest level since September 2012, and bringing the Swiss National Bank's cap of 1.20 francs per euro into the picture.
Traders cited bids at 1.2010 francs which could slow the Swiss franc's rise.
The franc has inched higher over the past month on growing expectations that the ECB will have to ease policy and launch a quantitative easing programme in the coming months.
That is likely to drive the euro lower.
As a result, talk has intensified that Switzerland's central bank will also have to intervene to weaken the currency against the euro or impose negative rates to make the Swiss franc less attractive to investors.
The SNB has successfully kept a lid on the franc's gains since it introduced the cap in September 2011 to fight deflation and says it has not had to intervene to reinforce it for more than two years.
But with a referendum on Nov. 30 that is aimed at preventing the SNB from offloading its gold holdings and obliging it to hold at least 20 percent of its assets in gold, speculators and hedge funds are targeting the 1.20 ceiling.
Also pushing the Swiss franc higher is the Hungary central bank's agreement last week with banks to unwind foreign currency mortgages.
It is estimated that over 60 percent of Hungarian mortgages are in foreign currency, mainly in Swiss francs.
The Hungarian central bank provided 7.83 billion euros to the banks to convert these foreign currency loans into Hungarian local currency debt. "We estimate that the (Hungarian) banks have sold 6-7 billion euros against the Swiss franc into a nervous market," said Jonathan Webb, head of currency strategy at Jefferies, adding this has underpinned the Swiss franc.
All the uncertainty about whether the SNB will intervene or not, has seen euro/Swiss franc implied volatility, a gauge of how sharp swings will be, rise.
The one-month risk reversals, a gauge of demand for options on a currency rising or falling, are showing an increasing bias for euro puts - or bets the single currency will fall and the Swiss franc will rise.
Comments
Comments are closed for this article.