ZURICH: The Swiss franc plummeted to its lowest in more than a year against the greenback on Thursday, as concerns grew about Spain's ailing banking sector and soaring borrowing costs.
The Swiss franc, which the Swiss National Bank capped at 1.20 per euro last September, has been trading in lockstep with the common currency against the dollar of late. With risk aversion high among investors due to Europe's debt crisis, the "Swissie" remains just shy of the 1.20 mark.
The euro fell to a level last seen in mid 2010 against the dollar on Thursday, driven by concerns that Spain, an economy bigger than that of Greece, Portugal and Ireland combined, will probably need outside assistance as its fragile economy and ailing banking sector make it impossible to cut deficit.
"With the EUR not capturing major positive headlines and with the lower boundary in EURCHF firmly in place at 1.20, USDCHF reaches new highs on an almost daily level," UBS economist Reto Huenerwadel said.
With anxiety about the euro zone mounting, concerns are also rising that the Swiss National Bank's cap may be in for a severe test and that it may make good on its pledge to take further steps to stem the currency's rise in the face of safe-haven inflows.
SNB Chairman Thomas Jordan said at the weekend contingency planning was underway in case the euro broke apart. Among the measures under consideration were capital controls, he said.
The franc was up 0.2 percent against the dollar to trade at 0.9697 by 0517 GMT compared to the New York close. Earlier in the session, it sank to all the way of 0.9719, its weakest since Feb. 17 2011. But it later clawed back those losses.
The franc was flat against the euro at 1.2009.
The SNB capped the franc to avert a recession in Switzerland, and so far the economy has done better than many economists had expected despite the overvalued currency.
First-quarter GPD data is due at 0545 GMT, and will indicate how much of an impact the euro zone's economic woes are having on the Swiss economy.
According to a Reuters poll, quarter-on-quarter growth is expected to be flat.