LONDON: The Swiss franc fell to its lowest on Thursday since the Swiss National Bank abandoned its currency peg against the euro last January, prompting talk in the foreign exchange market that the central bank was intervening to weaken the currency.
The franc fell to 1.10805 franc per euro, its lowest since Jan. 15 last year, when the Swiss central bank stunned global markets by lifting the cap it had had in place for 3-1/2 years limiting the franc at 1.20 franc per euro.
The franc tends to gain during times of financial market stress from safe-haven inflows, but it has not done so this time, unlike its peer the Japanese yen. The yen has gained broadly this month as oil fell and stock markets tumbled at the start of the year.
But the franc has lost around 1.4 percent against the euro and 1 percent against the dollar so far in 2016, with deeply negative interest rates - three month rates are around -0.75 percent - also keeping investors away.
"There has been a lot of talk about the roots of these moves in the franc," said a senior trader with one London-based currency house.
"The numbers suggest that they have been doing around 1-1.5 billion francs a week, which in the forex market is not much. So if they are getting this sort of a return for that much in intervention then it is not bad."
The SNB doesn't comment on intervention but describes the franc as "significantly overvalued" and is worried that a fresh round of monetary easing by the European Central Bank would trigger another bout of strengthening of the currency.
That would hurt an export-driven economy which is trying to come out of deflation.
Swiss National Bank Deputy Chairman Fritz Zurbruegg told a newspaper on Thursday that the ECB's measures to spur a recovery in the euro zone economy would inevitably contribute to a fall in the euro, so it was a good thing the SNB a year ago decided to abandon its franc/euro cap.
"The SNB will likely have to step up the ante to prevent euro/Swiss franc from falling," said Jane Foley, senior currency strategist at Rabobank.
"The fact that euro/Swiss franc has already rallied this week suggests that the SNB may already have stepped up FX interventions in a pre-emptive move."
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