The Swiss franc rose to the highest level against the euro in almost three weeks after euro-area finance ministers agreed to an unprecedented tax on Cypriot bank deposits as part of a rescue plan for the country, increasing interest in the relative safety of Switzerland’s currency.
The franc appreciated as much as 0.96 percent and was up 0.6 percent at 1.22025 at 9:07 a.m. in Zurich. The franc gained 0.6 percent to 94.49 centimes per dollar.
Cyprus President Nicos Anastasiades will try to persuade lawmakers to back a plan to impose losses on the island nation’s depositors today as part of a 10 billion-euro ($13 billion) bailout aimed at preventing a financial collapse and a possible departure from the euro area.
“The developments in Cyprus will lead to euro selling” and buying of francs, dollars and other currencies, Steven Englander, global head of G10 foreign exchange strategy at Citigroup in New York, said in an research note.
The euro area’s fiscal woes and fears of the crisis spreading have in recent years been a key driver of the Swiss currency. The franc advanced against the euro for a third day, reaching its strongest since Feb. 26, when inconclusive Italian election results were announced.
“The issue is whether to believe that the Cyprus levy on depositors is one-off,” Englander said. “The risk-return to depositors in countries with weak banking systems may not favor taking the risk that Cypriot banking system was so unique that such a levy would never be considered elsewhere.”
The Swiss National Bank imposed a ceiling on the franc of 1.20 per euro in September 2011 to help exporters and fend off deflation after it surged toward parity with the common currency.
Following its quarterly policy review on March 14, SNB President Thomas Jordan said the cap would be in place as long as necessary to shield Switzerland from fallout from the euro area’s debt crisis.
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