ZURICH: The Swiss franc weakened against the euro on Thursday, weighed down by the spectre of the central bank shifting down its cap on the record-strong Alpine unit.
Talk that the SNB could be preparing to push the cap it has imposed on the Swiss franc to 1.25 per euro from the current level of 1.20 has been circulating on foreign exchange markets and has weakened the franc past 1.22 per euro. The SNB has declined to comment.
Some traders have said the rumours come from people who have bet on the Swiss franc weakening against the euro and are hoping to capitalise on their positions.
The SNB capped the franc at 1.20 per euro on Sept. 6 to shield the economy from recession and deflation. It said it would use unlimited currency interventions, if needed. to maintain the ceiling.
"With EURCHF solidly supported at the SNB's lower boundary at 1.20 the combination of stop-loss buying and talk about an increase in the SNB's lower boundary pushed the cross temporarily above the 1.23 level," UBS economist Reto Huenerwadel said in a note.
The ZEW investor sentiment index for September is due at 0900 GMT and will give clues as to how much the Swiss economy is expected to weaken in coming months.
Risk aversion gained in prominence on Thursday, with the dollar at a seven-month high against major currencies, after the Federal Reserve said there were "significant downside risks" to the US economy
European shares were seen opening sharply lower, tracking falls on Wall Street and in Asia due to the Fed's gloomy outlook and Chinese purchasing managers index (PMI) data suggested the country was slowing.
The franc fell 0.3 percent against the euro to trade at 1.2255 by 0605 GMT compared to the New York close.
The franc fell 0.5 percent against the dollar.
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