The Swiss franc climbed on Wednesday and could hit record highs against the dollar and euro in days ahead if new measures by the Swiss National Bank and Swiss government fail to slow the currency's rise. While the SNB announced an expansion of its liquidity policy, investors who bet on more aggressive action were disappointed that the plan did not include a franc exchange rate peg.
The Swiss franc strengthened even after the SNB said it would boost liquidity by expanding sight deposits to 200 billion francs from 120 billion, reiterating it would take additional steps if needed. "People were caught on the wrong side, expecting the SNB to announce plans to adopt a currency peg and the price action today argues that they are unwinding those positions," said Jessica Hoversen, FX analyst at MF Global in New York. "The SNB, however, is testing the water and a peg has not been ruled out."
In a subsequent briefing, the Swiss government announced a package of measures such as providing 2 billion Swiss francs to support the economy and assisting the export and tourism sectors. The euro had earlier tumbled more than 2 percent against the franc in volatile trade to hit a low of 1.12248 francs on the EBS trading platform. Losses were later pared and it was last at 1.1392 francs, down 0.7 percent.
The dollar fell 1 percent to 0.7886 franc. "Based on the price action, it looked like the market was positioning for stronger action such as an intervention package from the Swiss government and they didn't get that," said Greg Anderson, senior currency strategist at CitiFX, a division of Citigroup, in New York.
At the end of the day, however, Swiss policy doesn't matter, he said. "You're pitting an economy with less than 8 million people against the eurozone with a population of 338 million. If eurozone investors want to buy the Swiss franc because they don't feel safe, there's nothing the Swiss can do about it." The SNB is still largely reluctant to intervene on the FX spot market and the best that it can hope for is to prevent further franc appreciation at this juncture, analysts said.
The US dollar, meanwhile, dropped across the board, hurt by sharp losses versus the franc and improved risk appetite, with most commodities higher. The euro was up 0.2 percent at $1.4438 in choppy trading, moving in tandem with the euro/Swiss franc. "EUR's trading pattern is concerning," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "Since the beginning of May it has had lower and lower highs, but failed to maker lower and lower lows, leaving it struggling within a narrowing range." Against the yen, the dollar fell 0.4 percent to 76.48, near levels seen before Japan's yen-selling intervention on August 4 and hovering near a record low of 76.25 yen in March.