Swiss franc falls, safety bids support dollar

LONDON: The Swiss franc fell against the euro and the dollar on Thursday, with traders citing talk that the Swiss National Bank was intervening in the currency forwards market as it renewed efforts to curb the currency's recent strength.

The US dollar rose against commodity-linked currencies like the Australian dollar while the Japanese yen was supported as stocks declined and money market tensions drove investors to the relative safety of the greenback and the yen.

The dollar firmed 0.4 percent against the Swiss franc at 0.7935 francs while the euro rose 0.5 percent to 1.1460 francs, off an earlier high of 1.1515.

"They (the SNB) have been in the FX swap market," said Chris Walker, currency strategist at UBS. "But we think the euro/Swiss franc will still fall back towards parity."

The franc soared to record highs against the dollar and the euro earlier this month as euro zone sovereign debt worries and concerns about a global slowdown saw investors rush towards perceived safe havens such as the Swiss currency.

In a fresh attempt to tame the franc's runaway rise, the SNB said on Wednesday it would boost liquidity by expanding sight deposits to 200 billion francs from 120 billion, and warned it would take additional steps if needed.

The SNB declined to comment on the latest talk that it was intervening in the forwards market. Forward market intervention involves selling Swiss francs in short-dated maturities to flood the market with francs, then buying them back at a later date.

Traders said by undertaking franc-selling operations in the forwards market, instead of in the spot market, the SNB was seeking to drive down the return on holding francs even lower and making it unattactive to potential investors.

The December 2011 Euroswiss contract traded at 100.51, implying a three-month Swiss franc Libor rate of -0.51 percent in December. The contract has risen from around 100.04 at the start of the week, implying the SNB's action was working for the moment.

GLOBAL PANGS

Meanwhile, the dollar index was up 0.15 percent at 73.775 while the euro was up 0.2 percent at $1.4444 on buying by Middle East investors.

Traders said offers above $1.4450 and talk of option structures at $1.4500 were likely to check gains.

On the downside, momentum fund stop entries were said to be below $1.4370. While the euro has been supported by steady sovereign buying at lower levels, a lack of more radical measures from Tuesday's Franco-German summit to address the euro zone debt crisis is likely to keep the euro capped.

The euro was marginally higher against the yen at 110.61 yen while the dollar was flat at 76.54 yen, not far from its record low of 76.25 yen struck in March.

Traders said the greenback could test this record low next week, when most Japanese players return from holidays and as Japanese exporters may sell the dollar in end-of-the-month transactions.

One factor that could weigh broadly on the dollar is market speculation about the possibility the US Federal Reserve may eventually launch another asset-buying programme.

Investors are focusing on whether Fed Chairman Ben Bernanke will drop any hints about such further monetary easing measures when he speaks at the annual Jackson Hole event next week.

"Ahead of this, today's data calendar is going to be crucial, with the Philly Fed survey, consumer price inflation, initial unemployment claims, existing home sales and leading indicators all demanding attention," BNP Paribas said in a note.

"Any upside surprise in core CPI --0.3 percent or higher-- or an initial claims number well below 400,000, would give pause for thought on an early move to QE3 and should see a bid re-emerge for the dollar."

The Australian dollar fell 0.7 percent to $1.059, pressured by a drop in equities.

Copyright Reuters, 2011