Swiss franc up vs euro but gains seen limited

ZURICH: The Swiss franc rose against the euro on Tuesday, with safe haven positioning spurred by ongoing concerns about Greece, but analysts saw big gains as unlikely as markets braced for a euro zone interest rate rise.

The franc has repeatedly hit records against the euro this year, lifted by concerns about sovereign debts in Greece and other peripheral euro zone states, and hit its latest peak of 1.1808 on June 27, according to dealing platform EBS, although it has eased somewhat since then.

The European Central Bank is set to hike interest rates to 1.5 percent on Thursday and is expected to show no sign of softening its hard-line stance that Greece must not be allowed to default on its debts.

Switzerland's benchmark interest rate target remains at an ultra-low 0.25 percent and the Swiss National Bank adopted a dovish stance at its most recent review. So a rate rise by the ECB should widen the interest rate differential and ease upwards pressure on the Swiss unit.

"It should still stay bid on dips," said Informa Global Markets analyst Tony Nyman.

"It is all about the ECB at the moment," he also said. "So even slightly unfriendly Euro/peripherals headlines could bring buyers back on any dip.

The franc was up 0.4 percent against the euro at 1.2280 per euro at 0616 GMT compared to the New York close. It was 0.1 percent softer against the greenback, trading at 0.8488 per dollar.

The SNB sees growth slackening to around 2 percent this year as the strong franc weighs on exports, buttressing the view of those analysts who say the franc is due for a reversal.

"We remain neutral EUR/CHF and target a range of 1.20 - 1.24 in one month," Credit Suisse analysts said in a note. "Our tactical and strategic outlooks stay bullish due to strong overvaluation of the Swiss franc and we expect euro/Swiss at 1.27 in three months and 1.30 in 12 months."

Copyright Reuters, 2011