The franc tumbled the most against the euro since the shared currency’s 1999 debut after Swiss National Bank Vice President Thomas Jordan said a temporary peg to the euro would be legal as policy makers try to stem the franc’s gains.
The New Zealand and Australian dollars climbed against the greenback as stocks surged. The franc fell versus all its most-traded peers after rising to records this week versus the euro and dollar as Europe’s debt crisis and U.S. economic weakness spurred refuge demand. The yen approached a post-World War II high versus the dollar, spurring bets Japan may intervene.
“The Swiss announcement effect is certainly negative, and it pushed out some speculators at the margin,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “It has been very difficult for the Swiss National Bank to take the tide on safe haven buying. I fully expect to see further Swiss appreciation next week.”
The franc dropped as much as 6 percent to 1.0921 per euro before trading at 1.0844 at 5 p.m. in New York, down 5.3 percent. The Swiss currency weakened 4.6 percent to 76.14 centimes versus the dollar, from 72.66 centimes yesterday.
The dollar lost 0.4 percent to $1.4241 versus the euro, from $1.4178 yesterday. The U.S. currency was little changed at 76.84 yen after earlier weakening to 76.31. It reached a postwar low of 76.25 yen on March 17.
The dollar erased earlier gains against the euro as the Standard & Poor’s 500 Index rose 4.6 percent after falling 4.4 percent yesterday. Initial claims for jobless benefits in the U.S. unexpectedly fell last week to a four-month low of 395,000, Labor Department data showed.
Belgium, France, Italy and Spain plan to impose bans on short selling or short positions, the European Securities and Markets Authority said in a statement late today New York time. A short position is a bet a currency or security will fall.
Implied volatility among currencies of the Group of Seven nations touched 14.72, the highest level since June 2010, according to a JPMorgan Chase & Co. index.
The premium European banks pay to borrow in dollars through the swaps market reached the most in almost eight months, a sign of concern that officials in the region are struggling to contain the fiscal crisis.
The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, was 47.7 basis points below the euro interbank offered rate, or Euribor, indicating a higher premium to buy the greenback. It widened earlier to as much as 50.8 basis points, the most since Dec. 17, according to data compiled by Bloomberg. Basis swaps allow investors to borrow in one currency and simultaneously lend in another.
The currencies of New Zealand and Australia were among the top gainers versus the dollar amid higher appetite for risk. Key interest rates are 2.5 percent in New Zealand and 4.75 percent in Australia, versus the U.S. benchmark of zero to 0.25 percent.
New Zealand’s dollar, nicknamed the kiwi, strengthened 2.6 percent to 83.19 U.S. cents, and Australia’s dollar added 1.7 percent to $1.0352.
“You’re having a risk-on day with stocks up,” said John Doyle, a strategist in Washington at the currency-trading firm Tempus Consulting Inc.
A temporary Swiss franc peg with the euro is within the range of options that policy makers may use to stem the currency’s record-breaking rally, the SNB’s Jordan said in an interview with the newspaper Tages-Anzeiger today.
“Any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability,” Jordan said.
‘Obligations to Intervene’
A peg to the euro would require constant SNB efforts to defend the trading range as investors continue to flock to the currency’s perceived safety, said George Magnus, a senior economic adviser to UBS AG. It “actually gives them obligations to intervene,” he said in an interview in London. Central banks intervene by selling or buying currencies to influence prices.
The franc gained 9.2 percent over the past month against the currencies of nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The yen appreciated 3.5 percent, euro rose 0.1 percent and the dollar dropped 1.4 percent.
“People were piling into the franc for safe haven,” said John Curran, a senior vice president at CanadianForex Ltd., an online currency dealer, by telephone from Toronto. “If people decide to get out of that, it could be like elephants running through a squash door -- that thing could get smashed.”
The U.S. currency earlier weakened for a fifth day against the yen in its longest run of daily declines since June 8.
Japanese Finance Minister Yoshihiko Noda said the yen’s movements have continued to be one-sided even after the government sold the currency on Aug. 4 to curb its gains. He was speaking to lawmakers in parliament in Tokyo today.
The euro dropped earlier amid growing concern the region’s sovereign-debt crisis may spread to France. Banks’ overnight borrowings from the European Central Bank jumped to the highest in three months today, a sign some lenders may have need for emergency cash.
“On a micro level, the banks have been under attack, and that’s a proxy for what’s going on with sovereign issues,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “Until there’s a resolution from policy makers on this front, there’s still too much uncertainty about what’s going on in the euro-zone banking sector.”