Swiss Franc Set to Turn Brazen From Boring Under Options Pricing
Nov. 19 (Bloomberg) — The Swiss franc’s price swings against the euro have diminished to a three-month low as it creeps toward the cap defended by Switzerland’s central bank since 2011. The options market indicates that’s about to change.
One-month implied volatility on the euro-franc, derived from options prices, climbed to 4.87 percent today, the most since September 2013. That’s about 3.20 percentage points higher than the currency pair’s volatility over the past month, and the biggest difference in almost 2 1/2 years.
The currency has strengthened before a Nov. 30 referendum that the Swiss National Bank has said will impede its ability to conduct monetary policy. Should the vote pass, the central bank will have to hold 20 percent of its reserves in gold. That will make it harder for policy makers to defend their 1.20-per-euro cap by purchasing foreign currencies.
Today, the franc appreciated through 1.2010 per euro for the first time since September 2012.
“The gold vote is obviously focusing people’s attentions very much on SNB policy,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “As we get closer to the floor, volatility could well pick up.”
The franc was at 1.20129 per euro as of 2:13 p.m. London time. It earlier reached 1.2009, the strongest level since September 2012, when the SNB says it last sold francs to enforce the limit.
The cap was breached only once since its implementation in September 2011, when the franc strengthened to 1.19995 per euro on April 5, 2012.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White, Mark McCord
