Dollar Swiss Franc Rate Improves Over Fears of Swiss Government Intervention

February 16, 2011 - Written by John Cameron

STORY LINK Dollar Swiss Franc Rate Improves Over Fears of Swiss Government Intervention

The early part of the week saw the Swiss Franc strengthen against the sixteen most-traded currencies following comments by the Chairman of Switzerland’s Central Bank, Phillip Hildebrand. He stated that inflationary pressures in the Swiss economy were being held in check by the strength of the Swiss Franc, which is serving to keep down the prices of foreign imports. However, Hildebrand went on to strike a more hawkish tone when he suggested that interest rates in Switzerland, which currently stand at 0.25%, can not stay at this unprecedented low level for long.

This hint at a tightening of monetary policy caused significant support for the Franc in the currency markets and it traded down from 0.9750 against the US Dollar at the start of the week to touch 0.9600 in the early part of today’s European session.

However, the Franc gave up much of these gains as today’s European session progressed, weakening to trade back above 0.9700 against the US Dollar at one point, as the Swiss government announced that they were taking action to lessen the impact of Swiss Franc strength on the Swiss business sector. At this stage, these measures are limited to giving the Swiss tourism sector CHF24m towards advertising costs and a one-off payment of CHF20m into a fund for innovation and technology. However, the market has not responded well to this acknowledgement that the strong Franc is harming the real economy in Switzerland as it has fired speculation that the Swiss government may take further direct action to weaken their currency in coming months.

With no data of note due for release in Switzerland for the remainder of the week, this speculation may continue to weigh down the Franc. Some relief may come in the form of any renewed fears over the Eurozone sovereign debt situation which would see the Franc benefit from its role as the European safe-haven currency of choice.

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TAGS: Pound Swiss Franc Forecasts Swiss Franc Forecasts