Swiss Franc Drops to Weakest Versus Euro Since SNB Removed Cap

  • Currency has weakened 1.5% this year, even amid market turmoil
  • Franc has traditionally been viewed as a haven asset

The Swiss franc declined against the euro, reaching the weakest level since the day the nation’s central bank removed the cap on the currency’s gains.

The franc depreciated 0.6 percent to 1.10518 per euro as of 5:38 p.m. London time, and reached 1.10599, the weakest since the Swiss National Bank unexpectedly removed its 1.20 per euro ceiling on Jan. 15, 2015.

Analysts cited different reasons for the franc’s decline. Peter Frank, global head of Group-of-10 foreign-exchange strategy at Banco Bilbao Vizcaya Argentaria SA in London, says the SNB are likely stepping up interventions to push the franc lower before the European Central Bank reviews its stimulus in March. While Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp., agrees that’s a possibility, he also speculated that investors may be expecting the Federal Reserve to soothe market turmoil with a dovish tone at this week’s policy meeting.

"It’s hard to make a cogent argument as to why the Swiss franc is weakening quite the way it is,” said Derrick. “The reason it matters is because it’s so counter intuitive."

SNB spokesman Walter Meier declined to comment.

The franc, traditionally sought as a haven in times of market turmoil, has weakened 1.5 percent this year even as stocks and commodities plunge and investors bet on more stimulus from the ECB. That’s in contrast to a year ago, when the cost of defending its currency cap in the face of euro-area easing forced the SNB to ultimately scrap the once-cornerstone policy in favor of a twin strategy of negative rates and interventions.

When the SNB abandoned the cap it said the costs of sustaining it would have been out of proportion to its economic advantages. The ceiling was imposed during the European debt crisis in September 2011, when concerns over the future of the currency bloc had driven investors to seek shelter in the safety of Swiss assets.

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