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[LONDON] The euro regained more than 3 per cent of its losses against the Swiss franc on Friday but was still near an 11-year low against the dollar, as investors took the Swiss move to scrap its currency cap as a sign the ECB would begin quantitative easing.
The euro suffered the biggest one-day fall against the Swiss franc in its history on Thursday, dropping over 18 per cent after the Swiss National Bank stunned markets by scrapping its three-year-old pledge to limit the value of the franc to 1.20 per euro.
Dealers speculated the Swiss had moved because they knew the European Central Bank would take the plunge into full-scale quantitative easing - effectively the printing of hundreds of billions of euros - at its policy meeting on Jan. 22.
Adam Myers, European head of FX strategy at Credit Agricole in London, said that inflows into Switzerland's foreign exchange reserves in December had been five or six times the average volume since the limits were put in place. "What that says it that someone out there really thinks that something is going to change in terms of policy in Europe, and the SNB were forced to breaking point and that's why they took the floor away," he said.
After falling as much as 30 per cent in a matter of minutes on Thursday in wake of the SNB's shock move, to a record low of 0.8500 Swiss francs, the euro was last trading at 1.0112 francs. That was up 3.7 per cent on the day but still more than 15 per cent below where it was before the SNB decision.
The loss of Swiss support for the euro - one of the few supports it had left - caused the single currency to slide to US$1.15675, a trough not seen since November 2003. It has since recovered a bit of ground and last stood at US$1.1621, still down 0.1 per cent on the day. "The euro may have suffered deep losses, but it will still come across selling pressure of a different kind if the ECB does decide to adopt quantitative easing," said Daisuke Karakama, market economist at Mizuho Bank in Tokyo.
A panicked market reaction helped lift the safe-haven yen against the dollar, which fell to a one-month low of 115.85 yen, before recovering a little to trade at 116.48.