Swiss franc hits 2-week low on talk of SNB involvement, informal band

[LONDON] The Swiss franc hit a two-week low against the euro and the dollar on Monday, on signs that the Swiss National Bank was intervening to weaken the currency and a report it was targeting a new exchange rate band.

Swiss newspaper Schweiz am Sonntag reported on Sunday that the SNB was informally aiming for a rate of 1.05-1.10 francs per euro, citing sources close to the bank. A spokesman for the SNB declined to comment.

On Jan. 15, the SNB shocked markets by removing its cap of 1.20 francs per euro, initially sending the Swiss franc up more than 40 per cent. It now trades 13 per cent higher than the cap.

Data on Monday showed bank deposits with the SNB rose in the week ending Jan 30, fuelling speculation that the central bank has been active in keeping a lid on the franc.

Also, the Swiss purchasing managers' index fell to 48.2 in January, pointing to a manufacturing contraction in the export-led economy.

The euro rose 2 per cent on the day against the Swiss franc to a high of 1.0591 francs while the dollar was up 1.5 per cent at 0.9345 francs.

"It is chatter that there is an informal band and the sight deposits data suggests that the SNB is there in the market,"said Manuel Oliveri FX strategist at Credit Agricole.

"The SNB is trying to smooth the flows and the volatility. Also we are seeing that our clients are staying away from this currency because of all the volatility."

Citi said in a note the newspaper report was likely to "reinforce the perception invisible hands have encouraged the Swiss franc lower." Against the dollar, the euro was 0.4 per cent higher, trading at US$1.1325, taking comfort from gains against the Swiss franc and purchasing managers' surveys which showed eurozone factory activity still growing in January.

But gains will be limited by concerns that Greece has yet to persuade a sceptical Europe to accept a new debt agreement.

"The more prolonged the negotiations between Greece and the EU, the more pressure we would expect on the euro," Morgan Stanley analysts said in a note. "We look to use euro/dollar rebounds into the US$1.14 area to establish bearish positions, targeting US$1.07."

The dollar recovered from a two-week low of 116.64 yen , to trade 0.2 per cent higher at 117.65 yen.

Buying by Japanese importers helped the dollar, but analysts said the currency looked vulnerable after data on Friday showed growth in the US economy slowed in the fourth quarter, driving Treasury yields to new lows.

Among key US numbers, ISM non-manufacturing data will be out on Monday and a jobs report on Friday.

REUTERS