Swiss franc inches up

The Swiss franc remained firm against the euro on Tuesday, continuing to trade beyond the central bank's former intervention threshold, while trading firmer against the dollar on Tuesday. On December 18, the franc, which is regarded as a safe-haven currency, appreciated for the first time in 9 months past the Swiss national Bank's 1.50 per euro former threshold.
Statistics from UBS meanwhile showed that consumption in November rose to its highest since September 2008 although it remained below its long-term average. In a research note, UBS economist Reto Huenerwadel said he expected the franc to weaken below the 1.50 intervention level in the first half of 2010, and that the possibility of the central bank stepping in could not be discounted.
To combat the worst recession in decades, in March the SNB launched exceptional policy measures, consisting of rock-bottom interest rates, corporate debt purchases and foreign exchange interventions. "The possibility of an SNB intervention remain clear and present," Huenerwadel wrote, adding that low volumes due to year-end holidays had heightened exchange-rate volatility.
UBS sees the franc at 1.52 against the euro by the end of the first quarter of 2010, and then at 1.50 by the end of the second quarter. Against the greenback, it sees the franc at 1.09 and then at 1.07. The SNB confirmed its first intervention on March 12, and between then and December traded in a 1.50-1.54 range. Markets assume the bank has stepped in at least four more times to prevent its rise. But at its December monetary policy review, the SNB softened its intervention stance, saying it would combat only an 'excessive' appreciation of the currency.
"We look for some position squaring and hence the possibility of a euro-franc rebound," Huenerwadel wrote. "Having said this, however, it is also true that our medium term outlook is for a lower euro-franc exchange rate going forward." The leading Swiss indicator will be closely watched for signs that the recovery is gaining momentum and could give the currency market some direction.