SF: Franc Falls Against Euro, Dollar as SNB Holds Benchmark Rate
By Stephen Morris
Sept. 16 (Bloomberg) -- The Swiss franc weakened against the euro and dollar after Switzerland's central bank kept its key rate unchanged and cut its inflation forecast.
The Swiss currency declined to its lowest level versus the euro in four weeks. The Swiss National Bank left the three-month Libor target rate at 0.25 percent as this year's 12 percent surge in the franc against the euro threatened to undermine the country's export-led economic recovery. Inflation will be at 1.9 percent in the first quarter of 2013, compared with a previous estimate of 3.1 percent, the central bank said.
"The strength of the Swiss franc clearly remains the dominant theme for the SNB," said Simon Derrick, chief currency strategist for Bank of New York Mellon Corp. "They cited the negative impact it is having on the economy, and embedded within there is an implicit threat that if it continues to threaten the economy, the SNB may take action, driving down the franc."
The franc fell 1.7 percent to 1.3277 per euro as of 4:18 p.m. in London, the weakest since Aug. 19. It reached 1.2766 on Sept. 8, the strongest on record. The franc depreciated 1 percent to 1.0137 per dollar.
All but one of 19 economists in a Bloomberg survey predicted the benchmark rate would remain unchanged.
The franc has strengthened as investors bought the currency and other securities seen as havens on concern that the global recovery is faltering. SNB policy makers have had to weigh the threat to export competitiveness from the currency's gain against the risk of faster inflation as the economy recovers.
Economic Gains
The franc rose earlier against the euro as the government raised its forecast for economic growth this year after the economy expanded at a faster-than-expected pace in the second quarter.
Swiss gross domestic product will rise 2.7 percent instead of 1.8 percent projected in June, the State Secretariat for Economic Affairs in Bern said in a faxed statement today. In 2011, the economy may expand 1.2 percent instead of 1.6 percent.
"Growth prospects in Switzerland are very strong, even considering the franc's strength," said Peter Rosenstreich, chief market analyst in Geneva at ACM Advanced Currency Markets. "Given the market's safe-haven-seeking predisposition," which was driven by concern the Federal Reserve will resume asset purchases, or quantitative easing, in the U.S. and sovereign debt risk in Europe, "we continue to see Swiss franc appreciation," he said.
The franc has gained 3.5 percent against the euro since June 17 when the SNB signaled it would phase out its 15-month policy of countering franc gains through purchases of foreign currencies.
