The Swiss franc climbed towards a record high against the euro on Monday as concerns over global growth boosted the Swiss currency.
Simon Smith at FxPro said one clear theme in the current environment of heightened nervousness about risk and the state of the US economy was a preference for the Swiss franc over other traditional haven currencies, such as the yen and the dollar.
He said the Swiss franc was benefiting from two very potent sources of demand. “First, money managers who feel less secure with the euro but prefer European currency exposure, second, those seeking a haven who are not enamoured with the fiscal fundamentals of the dollar or the yen.”
The Swiss franc rose to a high of Sfr1.3103 against the euro, just shy of the record high of SFr1.3070 against the single currency that it hit on July 1, before giving back some of its gains to stand up 0.1 per cent at SFr1.3123.
The news sparked some speculation that the Swiss National Bank, which abandoned its policy of intervening to stem the rise in the Swiss franc in June, might re-enter the market given the possible detrimental effects of a fresh surge in its currency on the Swiss economy.
However, most analysts concurred that the SNB, which faced domestic criticism over the cost of its currency interventions, was likely to remain on the sidelines.
Indeed, Philipp Hildebrand, SNB chairman, said while the central bank was still able to take action, it was limited by the potential for further moves to build inflationary pressures in the Swiss economy in the longer term.
Hans Redeker at BNP Paribas said Mr Hildebrand had reminded the market that while further intervention was possible, it would only occur within the context of Swiss monetary policy.
“Hence, with the Swiss recovery maintaining momentum and exports particularly strong while inflation is picking up, the need for intervention on the Swiss franc has also been much reduced,” he said.
“We expect the euro to continue to make new lows against the Swiss franc in the current environment where risk appetite is being challenged.”
Meanwhile the euro continue to come under pressure, hitting a two-month low against sterling, following dovish comments from Axel Weber, German Bundesbank president and a member of the ECB’s governing council, last week.
Mr Weber pushed for a later end to the ECB’s bank liquidity assistance than expected.
Analysts said the comments were significant given that Mr Weber was the favourite to take over as president of the ECB from incumbent Jean-Claude Trichet and had been regarded as one of the most hawkish of ECB board members.
Ulrich Leuchtmann at Commerzbank said the comments shattered the illusion that the ECB would exit from its ultra-loose monetary policy stance any time soon and that concerns over eurozone sovereign debt remained high.
“So far surprisingly positive eurozone economic data has distracted from the situation in Europe,” Mr Leuchtmann said. “But it has become clear that the difficulties caused by the debt crisis are far from over.”
The euro fell 0.1 per cent to $1.2692 against the dollar, just shy of the five-week low it hit on Friday, lost 0.1 per cent to £0.8165 against the pound and dropped 0.5 per cent to Y108.32 against the yen.
The yen also rose 0.3 per cent to Y85.37 against the dollar, staying close to the 15-year high of Y84.72 it hit earlier this month.
The dollar was little changed elsewhere, standing flat at $1.5535 against the pound and little changed at SFr1.0337 against the Swiss franc.
Elsewhere, the Australian dollar recovered from initial losses on news that neither of the major parties won an overall majority in the weekend’s general election.
The Aussie dollar initially dropped to a one-month low of $0.8839 against the dollar, but steadied to stand down just 0.1 per cent at $0.8927.
Adam Cole at RBC Capital Markets said he found it difficult to believe politics would be a serious issue for the Australian dollar.
He said in other currencies in recent months in which there had been a clear political risk premium priced in, this had generally reflected the combination of political uncertainty and a need for aggressive fiscal consolidation.
“The UK in particular fulfilled these criteria ahead of the May general election,” said Mr Cole. “With a sound fiscal position, both terms of debt and the current deficit, Australia seems far closer to the Canadian model, whereby political uncertainty counts for very little in currency markets.”
