Swiss franc falls, traders say SNB in swap market

LONDON: The Swiss franc fell against the euro and the dollar on Thursday, with traders citing talk the Swiss National Bank was intervening in the forwards market as part of efforts to curb the surging currency.

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

The dollar gained 0.8 percent to 0.7966 francs while the euro rose 0.4 percent to 1.1440 francs, having earlier climbed to 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 in a rush towards perceived safe havens sparked by euro zone sovereign debt worries and concerns about a global slowdown.

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 said it would take additional steps if needed.

The SNB on Thursday 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 or rolling them over at a later date.

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

Swiss money market rates moved deeper into negative territory. 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 GROWTH PANGS

Meanwhile, the dollar index was up 0.5 percent at 74.088 while the euro fell 0.4 percent to $1.4351 , tracking a 2.5 percent fall in European shares .

Technical support around $1.4360, the euro's 100-day moving average, and bids seen at $1.4350 were expected to limit further big losses, while steady sovereign demand at lower levels has been a pillar of support for the single currency.

However, a lack of more radical measures from Tuesday's Franco-German summit to address the euro zone debt crisis and lingering worries about some large European banks are likely to keep the euro under downward pressure.

It was lower against the yen at 110.10 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 that 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.

Before that, a slew of data on Thursday will provide clues on whether further US stimulus will be needed. Consumer price inflation data, the Philly Fed survey, initial unemployment claims, existing home sales and leading indicators are all due .

"The most important one will be the CPI and the market is positioned towards a stable to slightly lower number," said Adam Myers, senior currency strategist at Credit Agricole.

"If we get a lower number, Bernanke may prepare the ground for more QE but a higher-than-expected number will make that case difficult and could see the dollar rally.

The dollar's gains against commodity-linked currencies pushed the Australian dollar down 0.7 percent to $1.0460.

Copyright Reuters, 2011