The Swiss franc dropped to the weakest level in almost eight months against the euro as the European Central Bank’s bond-purchase plan reduced demand for safer assets.
The franc fell for a fifth day versus the 17-nation euro after the Swiss National Bank’s foreign-exchange reserves increased at a slower pace last month, suggesting there was less need for it to intervene and weaken the currency. The central bank put a cap on the franc of 1.20 per euro in September 2011 to stop it from rising and to protect exporters.
“The ECB actions are taking away tail risks from the euro zone,” said Bernd Berg, a currency strategist at Credit Suisse Group AG in Zurich. Speculators betting against the floor are “getting squeezed out of long franc-euro safe-haven positions.” A long position is a bet an asset will rise.
The franc fell 0.4 percent to 1.2093 per euro at 2:48 p.m. in London after depreciating to 1.2155, the weakest level since Jan. 9. The Swiss currency appreciated 0.6 percent to 94.79 centimes per dollar.
ECB President Mario Draghi announced the bond-purchase plan yesterday, saying it would focus on government notes with maturities of one to three years. The ECB will only intervene in the secondary market if a country has asked Europe’s bailout fund to purchase its debt, he said.
The Swiss National Bank said today its foreign-currency holdings rose to 418.4 billion francs at the end of August, from 408.6 billion francs the previous month, according to a statement published on the bank’s website.
That increase “was significantly lower than in the previous three months, suggesting that the SNB faced less pressure to defend the floor,” Barclays Plc foreign-exchange strategists Raghav Subbarao and Guillermo Felices in London, wrote in an e-mailed note to clients.
The ECB announcement and the foreign-currency reserve data, which were both “at the optimistic end of the spectrum of possible outcomes,” came in “quick succession, and combined with short market positioning, led to a sharp move” in the franc, the strategists wrote.
The franc has weakened 6.4 percent in the past year, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro declined 5.9 percent, and the dollar gained 4.7 percent.