Swiss Franc At Record High As Greek Woes Hit Euro
The Swiss franc rose to an all-time high against the euro Tuesday as worries about Greece's debt problems weighed on the common currency, and the market tested the Swiss National Bank's resolve to keep the franc's strength in check.
With the lack of a concrete plan to ease Greece's funding problems, the euro sank as low as CHF1.4270, below the CHF1.43 level hit during the financial crisis in October 2008. Despite the spike in the Swiss currency, there was no sign of intervention by the Swiss National Bank.
Worries about Greece also pushed the euro lower against the dollar, dropping below $1.35, before recovering some ground helped by stronger U.S. stocks.
“The Swiss franc is benefiting from its status as a safe haven,” said Sebastien Galy, a currency strategist at BNP Paribas in New York. “The market is testing the SNB, which is essentially allowing a tightening of monetary policy via the Swiss franc.”
SNB President Philipp Hildebrand warned investors earlier Tuesday that the central bank has the means to fight the Swiss franc's appreciation. The central bank has “huge” scope to push the currency down to deflect deflationary pressures, which rise as the strong franc make imports cheaper, he noted.
“I think the market will cautiously continue to sell the euro against the Swiss franc and perhaps see whether the SNB will step in and try and stop the Swiss franc strength,” said Rohan Ramchandani, head of FX spot trading at Citibank in London.
Early afternoon Tuesday, the euro was at CHF1.4268 from CHF1.4338 late Monday and at $1.3519 from $1.3554, according to EBS via CQG. The dollar was at Y90.36 from Y90.15. The euro was at Y122.14 from Y122.21, while the U.K. pound was at $1.5041, from $1.5095. The dollar was at CHF1.0554, from CHF1.0583.
The ICE Dollar Index, which tracks the U.S. currency against a trade-weighted basket of currencies, was at 80.604, from 80.740.
Greece's sovereign debt crisis continued to set the tone in global currency markets Tuesday, with the euro dropping to a session low at $1.3475 before rebounding on the back of stronger U.S. equity markets.
The Dow Jones Industrial Average pushed to a high for the session after news that sales of existing homes fell less than expected in February. Home resales tumbled by 0.6% to a 5.02 million annual rate from an unadjusted 5.05 million in January, while economists surveyed by Dow Jones Newswires expected sales last month to decrease 2.0%.
Meanwhile, investor focus remains on the European Union leaders' summit this week for signs of a deal on a rescue plan for Greece.
Germany is open to a potential compromise on euro-zone financial support for Greece in exchange for an agreement to beef up Europe's pact on fiscal discipline, according to a senior European official.
Berlin is prepared to back a rescue mechanism for Greece provided it be used only as a last resort and involve the International Monetary Fund, the person said.
Although European Commission President Jose Manuel Barroso has said that he is confident that Berlin will back a euro-zone financial package for Greece, despite domestic opposition, the market appears to be concentrating on German Chancellor Angela Merkel's insistence that there is no need to even discuss an emergency package at this stage.
“The Greek situation is so unsettling because it doesn't look like there will be any resolution for quite a while,” said Steve Butler, director of foreign exchange at Scotia Capital in Toronto.
The pound, meanwhile, came under pressure after data showed that inflation fell back to 3.0% in February from 3.5% in January.