- Investors consider if central bank will counteract ECB easing
- Franc also drops as month-end buying supports the greenback
The Swiss franc dropped to the weakest level in five years against the dollar as speculation the European Central Bank is gearing up to boost stimulus led investors to consider whether the Swiss National Bank will respond by intervening to weaken its own currency.
With markets braced for additional ECB easing in December, economists surveyed by Bloomberg this month said the SNB has room to restart major currency purchases if needed to weaken the franc. The SNB abandoned a cap against the euro in January, a week before the ECB announced its quantitative easing plan.
The franc fell against all but one of its 16 major peers Friday. It weakened the most in three weeks against the dollar as month-end buying also supported the U.S. currency.
"We don’t know if it was intervention or not, but it would make sense,” said Simon Derrick, the chief currency strategist at Bank of New York Mellon Corp. in London. “Would you rather take pre-emptive action on Swiss franc strength? Yes. If you take currency policy as an adjunct to monetary policy and you’re worried about franc strength, it would be a sensible approach."
The franc dropped 0.7 percent to 1.0306 per dollar as of 4:51 p.m. London time, its biggest one-day decline since Nov. 6. It earlier touched 1.0328, the weakest since August 2010. The currency weakened 0.5 percent to 1.0919 per euro.
SNB spokesman Walter Meier declined to comment.
Swiss central bank President Thomas Jordan has repeatedly warned buyers to avoid the “significantly overvalued” franc as he attempts to protect exporters and boost inflation. Pressure from speculators before the start ECB’s asset-purchases forced policy makers to abandon their 1.20 per euro cap, sending the franc soaring to a record against the common currency, overwhelming electronic currency-trading systems and roiling global markets.
Now, predictions that the ECB will expand its stimulus at its Dec. 3 meeting have pushed the euro lower against all of its 16 major peers except the Swiss franc this quarter.
The move may also be exacerbated by low liquidity, according to Peter Rosenstreich, head of market strategy at Swissquote Bank SA in Gland, Switzerland. U.S. markets were closed for the Thanksgiving holiday on Thursday and will also close early on Friday.
“At this point we have no evidence that it’s the SNB’s intervention,” he said. “We can only assume that this is a low liquidity environment combined with expectations for the SNB to act.”