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The Swiss franc gained ground versus the dollar on Tuesday and the euro after the IMF warned of the danger of an abrupt appreciation of the Swiss currency if carry trades unravel.
The Swissie was 0.15 percent higher against the dollar at 1.2213 francs per dollar, and stood at 1.6489 francs per euro, a rise of 0.1 percent against the single currency, well clear of a recent 8-1/2-year low of 1.6614 per euro.
The franc has been under pressure for months as the Swiss National Bank's relatively low benchmark interest rate of 2.25 percent makes it an ideal funding currency for investments in higher-yielding assets in the so called carry trades.
On Monday, the International Monetary Fund warned that carry trades in the franc must be watched closely as an abrupt appreciation of the currency due to a sudden unwinding could hurt economies that borrow heavily in the franc.
The SNB has also intensified its warnings over the weak franc and markets are now pricing in interest rate rises at each of the central bank's remaining three meetings this year.
Strong Swiss economic data had supported rate hike expectations last week but inflation held steady at 0.5 percent in May, well below the SNB's threshold of 2 percent, dampening speculation about a more aggressive monetary tightening.

Copyright Reuters, 2007

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