ZURICH: The Swiss franc inched higher against the euro on Wednesday, recovering ground after hitting a fresh 13-month low the previous session, though remaining on a downtrend against the single currency as euro zone debt worries ease.
The euro-franc exchange rate broke through the 1.22 mark for the first time in more than a year last week, before climbing even higher with many traders raising bets on a sustained period of franc weakness.
The pair had traded in an extremely tight range between 1.20 and 1.22 francs per euro throughout 2012. After investors panicked by the euro zone crisis bid the safe haven franc up to record levels, the Swiss National Bank imposed a 1.20 per euro cap in September 2011 to stave of a recession and deflation.
"With the euro zone debt crisis subsiding, the currency pair has once again taken on a life of its own, with Switzerland less in demand as a safe haven," said Commerzbank foreign exchange analyst Lutz Karpowitz.
"With higher levels in the euro Swissie the SNB will start to sell some of their non-franc currency reserves, though we expect them to do this in a cautious way to avoid damaging sentiment for a higher euro-franc rate," Karpowitz said.
Even so, the sharp fall in the franc against the euro caught some investors on the hop.
"Not many had positioned for this move in the euro/Swiss franc spot," said a chief options trader at a large European bank in London. "As a result, implied volatilities have exploded," he said, adding bets are being laid for the euro to rise to 1.25 francs in the next six months.
The franc rose 0.3 percent against the euro compared to the New York close, trading at 1.2363 francs per euro by 0725 GMT.
The franc was 0.1 percent higher against the dollar at 0.9306 francs per dollar.
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