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SNB Currency Holdings Fell, Indicating Asset Sales

The Swiss central bank’s currency reserves fell for a second month in July, indicating the central bank may have started reducing its foreign-exchange holdings.

The franc rose after the Swiss National Bank said currency holdings dropped to 219.3 billion francs ($208.5 billion) from 224.9 billion in June, according to a statement on its website today without giving details. The Swiss franc rose 0.3 percent today and was at 1.3816 per euro as of 2:17 p.m. in Zurich, compared with 1.3860 yesterday. The Swiss currency has shed 3.4 percent against the euro over the past month.

“The SNB has probably already started reducing its currency holdings,” said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. Still, “they’ll make sure that they don’t strengthen the franc” by reducing their currency holdings. “It’s part of a normalization process.”

The Swiss National Bank was forced to purchase foreign currencies including euros and dollars to prevent deflation and bolster Swiss exports. After quadrupling its reserves, the SNB on June 17 signaled that it’s ready to stop purchases with President Philipp Hildebrand saying the same day that surging holdings will “inevitably increase” currency risk.

The central bank’s euro holdings surged to 159.9 billion francs in the second quarter from 80.6 billion francs in the previous three months, it said on July 21. Dollar reserves were at 48.7 billion francs at the end of June.

Last month’s decline in the franc versus the euro helped pare the currency’s 7.4 percent gain this year after the Greek fiscal crisis undermined investor confidence in the region.

“The main message is that the SNB didn’t maintain its interventions,” said Dirk Schumacher, an economist at Goldman Sachs Group Inc. in Frankfurt. “Still, what we are seeing is not a shift in strategy. It just seems that they don’t want to influence the market at the moment.”

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