Swiss franc jumps as fresh SNB steps disappoint

LONDON: The Swiss franc jumped on Wednesday as fresh steps by the Swiss National Bank to stem franc gains disappointed a market positioned for more radical measures, such as direct intervention or pegging the currency to the euro.

But the Swiss have previously expressed a determination to tackle what they perceive as an excessive rise in the franc and may yet opt to intervene or impose a floor on their euro exchange rate, which analysts said should cap its rise and keep it above its recent record versus the euro.

The SNB announced it would further boost liquidity by expanding sight deposits to 200 billion Swiss francs from 120 billion francs, and would if necessary introduce further measures.

"There is disappointment in the lack of a strong commitment to measures that would stand in the way of a strong Swiss franc," said Michael Sneyd, currency strategist at Societe Generale.

The euro tumbled more than 2 percent against the Swiss franc at one point to hit a low of 1.12248 francs on EBS trading platform as safe-haven demand for the Swiss currency resumed.

Earlier, the euro had strengthened past 1.15 francs for the first time this month as talk the Swiss may introduce a lower target level against the euro left traders wary of betting against such a move.

Overnight implied volatility in euro/Swiss franc dropped back from extreme levels of around 62 percent in early European trade to around 50 percent after the SNB announcement, traders said. There had been rumours in the market of a lower level for a peg being set well above the current euro/Swiss spot rate.

But SocGen's Sneyd said investors would be aware that more measures could be announced later this week or over the weekend.

The Swiss cabinet may hold a press conference following a meeting later on Wednesday, or possibly on Thursday, to discuss the impact the strong currency is having.

"The Swiss franc will very much remain a favoured currency because of ongoing concerns about the euro zone debt crisis and it will be a battle between those who want to buy Swiss francs and the authorities who want to stem its gains".

The euro was last down 1.2 percent at 1.1346 francs, still comfortably away from its record low of 1.0075 hit just over a week ago. The dollar was down 1.3 percent at 0.7860 francs.

EURO ZONE WORRIES

Lena Komileva, global head of G10 currency strategy at Brown Brothers Harriman, said the SNB's measures were "inadequate in an environment where investors are seeking safe haven", adding: "This will invite more speculative flows into the Swiss franc."

Demand for safe-haven assets was expected to remain as concerns remain about a weakening global economy and a lack of any solution to the euro zone debt crisis. This kept the yen firm, with the dollar down 0.35 percent at 76.50 yen , near a record low of 76.25 yen.

French and German plans for closer fiscal integration failed to convince investors that leaders had gone far enough to tackle a spreading regional debt crisis, weighing on sentiment towards the euro.

But traders said Middle East demand helped lift the euro up 0.2 percent against the dollar to $1.4438, off a session low around $1.4324.

A move back below support at its 100-day moving average around $1.4356 and the 55-day moving average at $1.4330 could leave the euro open to a test of last week's low just above $1.41.

France and Germany unveiled far-reaching plans on Tuesday for closer euro zone integration, including deficit limits and biannual summits and said that joint euro zone bonds may be a longer-term option.

Many experts believe the only way to ensure affordable financing for the bloc's most financially distressed countries would be for the euro area to issue joint bonds.

Copyright Reuters, 2011