markets

Swiss Franc Weakens Below Key Level as BlackRock Stays Short

Updated on
  • Currency closer to fair value now versus euro, MUFG says
  • Decline likely to take some pressure off policy makers: ING
SNB's Jordan Says Weakening Swiss Franc Still a Safe Haven

The franc weakened past 1.20 per euro for the first time since the Swiss National Bank removed its cap on the currency, providing relief to the nation’s policy makers who have been battling an overvalued exchange rate for the past decade.

The Swiss currency fell as much as 0.13% to 1.2001 per euro, its weakest since January 2015, when the SNB shocked currency markets with its decision to discard the 1.2000 cap. Earlier Thursday, Bloomberg reported that BlackRock Inc. is betting that the franc will extend this month’s worst performance among Group-of-10 currencies.

“The market has been gunning for the 1.2000 level all day, and it has finally been taken out,” said Lee Hardman, a currency strategist at MUFG. “It completes the long drawn-out reversal from the sharp plunge at the start of 2015. We believe that the Swiss franc is closer to fair value now against the euro although that does not mean that it can’t continue to weaken. There is no immediate reason to believe there should be a trend reversal.”

The franc traded steady at 1.1983 per euro as of 4:55 p.m. in London. It has weakened almost 2 percent against the shared currency this month.

The currency’s decline is a boon for the SNB, said Scott Thiel, deputy chief investment officer for fundamental fixed income at BlackRock, as it works in favor of the central bank’s goal to spur inflation.

Less Patrolling

Strategists at ING Groep NV agree, forecasting the franc to weaken to 1.25 by the end of this year. The move, however, doesn’t change anything fundamentally, they said.

"The weaker franc will have provided SNB officials with a bit of breathing space,” said Viraj Patel, a currency strategist at ING. “There’s certainly less need to be eagerly patrolling FX markets.”

Back in 2015 when the SNB discarded its currency cap, the franc surged as much as 41 percent against the euro. The move convulsed financial markets and trading in the Swiss currency shriveled after the announcement, causing liquidity to dry up. The surge in volatility that followed saw bank platforms from Deutsche Bank to Saxo Bank suffer disruptions to electronic trading.

One factor working in favor of Swiss policy makers is the currency’s dwindling appeal as a haven. The franc’s performance has lagged its global peer, the yen, in recent times of market stress. Still, the SNB is likely to stick to its vigilant tone on the franc as protectionist policies and geopolitics threaten to sap risk from the market and hamper global growth.

Earlier in April, SNB President Thomas Jordan said financial markets remain in a “fragile” state and the central bank didn’t want to “provoke” an appreciation in the franc by changing its monetary policy.

— With assistance by Vassilis Karamanis, Fergal O'Brien, Jan Dahinten, and Charlotte Ryan

(Recasts, adds BlackRock’s positioning, ING outlook.)
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