Switzerland's Franc Retreats From Records Against Euro and U.K. Currency

Switzerland’s franc weakened against the euro and the pound, paring its advance one day after climbing to records as investors unwound positions in thin year- end trading.

The franc, which reached a record against the dollar today, depreciated against 13 of its 16 major trading partners. It has strengthened 8.3 percent this year, according to Bloomberg correlation-weighted currency indexes, as the euro area’s sovereign debt crisis worsened, spurring investor demand for safe-haven securities. The euro has dropped by 10.3 percent over the same period, the dollar fell 3.3 percent and the pound declined 7.5 percent, the indexes show.

“The franc has benefited as a safe-haven this year amid the euro-region’s debt crisis,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “It’s a little bit off yesterday’s highs against the euro as people look to book some profits ahead of year-end.”

Switzerland’s currency weakened 0.7 percent to 1.2513 per euro as of 12:37 p.m. in London. It reached a record of 1.2402 per euro yesterday. It was little changed at 93.49 centimes versus the dollar, after reaching 93.38 centimes earlier today. It fell 0.6 percent to 1.4512 francs per pound, after strengthening to 1.4402 francs yesterday.

“The Swiss franc was the darling of the markets in December,” analysts at UBS AG, including Geoffrey Yu in London, wrote in an e-mailed report today. “The collapse in dollar- franc suggests that there was more than flight from the Eurozone at play and investors are genuinely viewing the franc as both a growth vehicle, but also protection against broader macro risks.”

Over the Year

Over the year, the franc has gained 15 percent against the euro, 12.7 percent against the pound and 9.4 percent against the dollar.

The Swiss National Bank held borrowing costs near zero this month in an effort to keep a lid on the franc’s appreciation. The SNB left the three-month Libor target rate at 0.25 percent on Dec. 16. While the SNB in June stopped intervening in currency markets, a stronger franc may undermine the nation’s export-led growth and raise deflation risks.

“The Swiss National Bank has a very fine line to tread between achieving their inflation forecast and going back into deflation,” Mellor said. “We can’t preclude intervention.”

The Swiss economy is forecast to grow at a rate of 1.7 percent next year and 2.2 percent in 2012, outpacing the euro area, which is expected to expand at a rate of 1.5 percent in 2011 and 1.8 percent the following year, according to a Bloomberg survey of analysts.

Editors: James Kraus, Mark McCord

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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