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Franc Declines Versus Euro as Currency Reserves Rise to Record

The franc weakened against most of its major counterparts as the Swiss National Bank said its foreign-currency holdings increased to a record last month after its decision to cap the currency’s gain.

The franc declined the most against the Brazilian Real and the Japanese yen amid speculation the central bank may impose further measures to contain its strength after imposing the cap last month at 1.20 per euro. Reserves jumped to 282.4 billion francs ($305 billion) at the end of September, from 253.4 billion francs the previous month, the SNB said. The franc rose against the pound after the Bank of England reactivated its bond-purchase program.

“The Swiss National Bank supports the euro-franc exchange rate with franc sales, and there is continued speculation that the SNB might raise the lower threshold for the euro-franc from 1.20,” Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt, wrote in a note to clients.

The franc depreciated for a third day against the euro, falling 0.2 percent to 1.2348 2:36 p.m. in London. It fell 0.5 percent to 92.76 centimes per dollar, and dropped 0.7 percent to 82.64 yen.

Today’s reserves data include both changes in foreign-currency swaps as well as increases in currency holdings as a result of direct franc sales. The report didn’t specify how much the central bank spent in curbing the franc’s strength.

Intervention Estimate

“We estimate, extracting from valuation effects, they bought around 11 billion francs worth of euros,” said Geoff Kendrick, European head of currency strategy at Nomura International Plc. The calculation was based on an assumption that the percentage of euros in the reserves remained unchanged from the second quarter at 55 percent.

The SNB imposed a ceiling on the franc for the first time in more than three decades on Sept. 6, pledging to defend the target with the “utmost determination” and prompting a record drop in the currency.

The franc stayed lower after a separate report showed inflation accelerated more than economists forecast in September, led by higher costs for clothing, shoes and energy.

Consumer prices increased 0.5 percent from a year earlier after rising 0.2 percent in August, the Federal Statistics Office said. Economists forecast prices to rise an annual 0.3 percent, according to a Bloomberg News survey.

‘Unavoidable’ Inflation

“The SNB interventions increase the money supply and are therefore unavoidably an important ingredient for rising inflation,” Commerzbank’s Karpowitz wrote. “Against this background, today’s inflation data for September will gain increasing significance.”

The franc reversed an earlier decline against the pound after the British central bank said it would increase its bond-purchase program, known as quantitative easing, to 275 billion pounds ($422 billion) from 200 billion pounds to support the economy.

The Swiss currency remained weaker against the euro after the European Central Bank kept its benchmark rate on hold at 1.50 percent.

Swiss bonds were little changed, with the two-year note yields rising less than one basis point to 0.04 percent. Ten-year yields rose one basis point to 0.94 percent.

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