Thu, Aug 18, 2011 - Page 10 News List

Swiss decide against euro peg

FRANC IN FAVOR:The central bank yesterday said it would conduct foreign exchange swap transactions to stem the currency’s rise, but the market appeared unconvinced

AP and Reuters, GENEVA, MADRID and ROME

The Swiss franc was back in demand yesterday after the Swiss National Bank failed to peg the currency with the euro, as had been widely speculated upon in recent days.

Instead, the bank decided to inject more of the Swiss currency into the money markets in its latest attempt to stem the export-sapping appreciation of the currency.

It said it would expanding the sight deposits of banks held at the central bank from 120 billion Swiss francs to 200 billion (US$255 billion) — these are deposits that are immediately accessible.

As part of its latest batch of measures, its third since Aug. 3, the central bank said it would conduct foreign exchange swap transactions to ease the value of the franc and “will, if necessary, take further measures.”

However, the markets seemed unconvinced by the moves.

By mid-morning London time, the euro was trading around 1.2 percent lower on the day at SF1.13, while the US dollar was 1.3 percent lower at SF0.7859.

Jane Foley, senior currency strategist at Rabobank International, said the markets were disappointed that the bank held off from “announcing more stringent tactics.”

Over recent days, the Swiss franc has fallen markedly on speculation that it would be pegged with the euro — under such a system, the central bank would use whatever it had to maintain the rate at which the peg was set.

Though, it failed to announce a peg, the central bank said it could take further action and that the franc’s current rate was “massively overvalued.”

The Swiss franc has been buoyed of late by its status as a safe haven for investors to park their cash in times of financial turbulence. Last week, it almost struck parity against the euro for the first time since the single currency was introduced in 1999.


Separately, Spain and Italy, under the market microscope over debt servicing costs, welcomed Franco-German proposals for a more integrated eurozone yesterday and said they hoped the plans would usher in region-wide bonds.

In Madrid, a government spokesman Tuesday’s declarations by French President Nicolas Sarkozy and German Chancellor Angela Merkel increased chances of common euro bond issuance — seen by some as the only way to ensure financing for the region’s debt-laden states.

“The more we move towards the integration of economic policy, the closer we get to the idea of euro bonds,” Socialist party spokesman Jose Blanco said in an interview on national radio.

The leaders of the eurozone’s top two economies pledged after a meeting to defend the euro and laid the groundwork for future fiscal union, but stopped short of increasing the bloc’s EFSF rescue fund and said common bonds would have to wait.

In Italy, Fabrizio Cicchitto, head of Italian Prime Minister Silvio Berlusconi’s PDL party in parliament’s lower house, said the government was on the same wavelength as Merkel and Sarkozy and hoped the German leader would warm to plans for a euro bond.

“We hope that Merkel will be convinced of the value of euro bonds in September,” he said.

Merkel and Sarkozy also proposed taxing financial transactions, and the French president said the countries’ finance ministers had been asked to prepare proposals aimed at having a common corporate tax base and tax rate in France and Germany from 2013.

The two leaders want a president to be elected to represent the euro zone and twice-yearly meetings of the leaders of the 17-nation bloc.

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