The Swiss franc stayed near a record high against the euro amid speculation the nation’s economic outperformance compared with its European neighbors will encourage the central bank to allow further appreciation.
The franc reached 1.4003, the strongest level since the euro was introduced in 1999. Royal Bank of Scotland Group Plc extended a recommendation to buy the franc against the euro, while Goldman Sachs Group Inc. said the Swiss National Bank may phase out its policy of countering the gains next month. The SNB started selling the currency in March 2009 to stops its appreciation.
“At some point we can only imagine they will want to back away, and at that point I assume there will be a lot of demand to buy the Swissie,” said Stuart Bennett, a senior foreign- exchange strategist at Credit Agricole SA in London. “All these levels in euro-Swissie have been a function of the intervention policy and the weak euro. No matter what level they intervene at, the market pushes it back to that level again.”
The franc weakened was at 1.4006 as of 6:21 p.m. in Zurich, from 1.4008 on May 14.
“It’s only a matter of time before euro-Swiss franc lurches lower again,” Paul Robson, a senior foreign-exchange strategist at RBS in London, said in an investor note today. He advised selling the franc with an estimate it may reach 1.37 per euro, after it approached an earlier 1.40 price target.
The franc jumped as much as 2.2 percent on May 6 amid speculation the SNB allowed the currency to rise after data showed Switzerland’s consumer prices increased 1.4 percent in April from a year earlier, matching the fastest pace since November 2008. The euro reached its lowest level in more than four years against the dollar today on concern measures to reduce fiscal deficits will undermine the region’s growth.
SNB Chairman Philipp Hildebrand said today it will act in a “decisive manner if needed.”
“Uncertainty about the future of Europe has a direct impact on the Swiss economy and the SNB,” Hildebrand said at an event in Zurich today. “The flight from the euro leads to strong upward pressure on the franc and is threatening price stability and an economic recovery in Switzerland.”
The SNB may phase out its policy of countering gains in the franc next month after the unprecedented purchases of foreign currencies pushed holdings to a record, Goldman Sachs said.
“Foreign-currency interventions imply increasing financial risks for the SNB,” Goldman Sachs economists Dirk Schumacher in Frankfurt and Adrian Paul in London wrote in an e-mailed note. “Aggregate foreign-currency reserves on the SNB’s balance sheet have now increased to such an extent that they call into question the sustainability of further currency interventions.”