More semi-surreptitious central bank market intervention

Swiss Franc Drops on Speculation SNB Sold Lots of It

By Gavin Finch
Bloomberg News
Wednesday, July 24, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9Rn__17lKZI

LONDON -- The Swiss franc dropped the most against the euro and the dollar in more than three months on speculation bank officials sold the currency to curb gains that are shackling the economy.

The franc slid as much as 2.4 percent versus the euro and 3.3 percent against the dollar, the biggest declines since the Swiss National Bank said March 12 it would intervene to stop the currency’s appreciation. SNB President Jean-Pierre Roth said six days ago that policy makers will act to curb any "irrational appreciation" of the franc. Neither the SNB nor the Bank for International Settlements would comment today.

"It looks like it's the SNB either directly or maybe through one of their agents, a multilateral bank, intervening in the foreign-exchange markets buying euros, selling Swiss francs, punishing those people who were trying to fight them," Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co., said in a Bloomberg Radio interview.

The franc weakened to 1.5292 per euro as of 3:23 p.m. in Zurich. It rose to 1.5012 earlier, the highest level since June 18. Against the dollar, the franc slid to 1.0991.

Switzerland's economy will shrink between 2.5 percent and 3 percent this year, according to the SNB, as the currency's gains hamper exports. The franc rose 7.6 percent in the six months before the central bank started capping its advance.

SNB spokesman Nicolas Haymoz in Zurich declined to comment on whether the bank acted in foreign-exchange markets today. Basel-based BIS spokeswoman Lisa Weekes also refused to comment.

... 'Line in Sand'

The franc plunged 3.3 percent against the euro on March 12, the most since the single European currency was introduced in 1999, after the SNB lowered its main lending rate to 0.25 percent from 0.5 percent and said it would buy currencies in its first solo intervention in foreign-exchange markets since 1992.

Before today, the currency's biggest declines since March 12 were on June 18 and May 15. On both occasions, it approached 1.50 per euro before weakening.

"They're trying to put a line in the sand at 1.50," said Ashraf Laidi, chief market strategist in London at CMC Markets. "There's a big debate as to whether they will continue doing this, and for how long they will remain successful."

Before this year, the SNB hadn't intervened in foreign- exchange markets to influence prices since the mid-1990s. The last time a central bank from one of the Group of 10 industrialized nations acted to weaken a currency was when the Bank of Japan sold 35.2 trillion yen ($390 billion) in 2003 and 2004. Instead of falling, the yen rose about 6 percent against the dollar in the year after sales ended.

... Trade Surplus

The franc declined 3.8 percent against the euro since March 11, the day before the SNB officially began intervening.

Investors were lured to the franc last year as the global economic turmoil unfolded, fanning demand for the currencies of nations with surpluses that make them less reliant on borrowing overseas. Switzerland's trade surplus was 8 percent of gross domestic product last year.

Exports, which make up more than half the economy, may drop 2.6 percent this year, the government said Dec. 16.

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