Swiss franc falls on signs of central bank's intervention

London

THE Swiss franc fell on Wednesday on signs the central bank may be intervening to stop it rising further, outweighing the impact of concerns about the spread of a new coronavirus that have driven investors into safe-haven assets this week.

The franc dropped against both the US dollar and euro, falling as much as 0.5 per cent against the single currency.

The move was "relatively strange given there is very little going on in the broader markets and likely signals the Swiss central bank's discomfort with the currency at current levels," said Thu Lan Nguyen, a FX strategist at Commerzbank based in Frankfurt.

Against the euro, the franc fell to 1.0787 francs per euro before trimming some gains to around 1.0767 francs. It hit a more than 2-½-year low of 1.0729 last week.

Against the US dollar, it was down 0.2 per cent at US$0.97055.

Broader currency markets were trapped in tiny ranges, with concerns that the coronavirus outbreak in China could trigger a pandemic leading to some demand for safe-haven assets.

The Swiss National Bank has had an interventionist approach to the franc as it struggles to boost inflation in the highly export-oriented economy.

It declines to talk about its currency management policy, but investors use weekly sight deposit data as a proxy to estimate how active it has been in the currency markets.

Data published on Monday showed an increase in the amount of cash that domestic commercial banks hold with the Swiss National Bank.

Though there was no immediate market trigger for the central bank to intervene around these levels, traders said a drop in general market volatility may have encouraged authorities to step in as it usually creates an outsized impact on the market.

Daily volatility in the euro-dollar exchange rate, for example, has cratered to below 3 per cent, more than halving from around 7 per cent in September and not far from a record low of below 2 per cent in April 2014.

Meanwhile, the euro remained pinned at a one-month low amid expectations European Central Bank would strike a cautious tone at its meeting on Thursday.

A survey by Germany's ZEW research institute on Monday showed investors' mood improved more than expected in January and the signing of a Phase 1 China-US trade pact raised hopes Europe's economy would recover. A Citigroup index of eurozone economic activity rose to its highest since February 2018. REUTERS