SNB History Shows Cap Defense Starts at 1.201 Per Euro, UBS Says
Nov. 11 (Bloomberg) — Switzerland’s central bank may step in to defend its cap on the franc against the euro at around 1.2010, according to UBS AG, the nation’s largest lender.
The franc was within 0.2 percent of the 1.20-per-euro limit today, the closest it’s been to the cap since September 2012, when the Swiss National Bank says it last sold the franc to defend the currency. The franc is strengthening before a Nov. 30 referendum that, if passed, would require the central bank to boost its gold holdings as a proportion of assets, making it harder for policy makers to control the currency.
“The 2012 precedent suggests that the SNB might intervene and purchase euros at around 1.2010,” Beat Siegenthaler, currency strategist at UBS in Zurich, wrote in a note e-mailed to clients dated yesterday. “The gold initiative appears to have low chances of success.”
SNB spokeswoman Silvia Oppliger declined to comment when questioned on foreign-exchange market interventions.
The franc was little changed at 1.20219 per euro as of 11:38 a.m. London time after strengthening to 1.20213.
The cap was introduced more than three years ago to support Swiss exporters as investors sought the relative safety of the franc at the height of the euro area’s sovereign-debt crisis. It has only been breached once, when the franc appreciated to 1.19995 per euro on April 5, 2012.
Intervention Level
“When they were intervening during the euro-zone crisis we didn’t actually touch the 1.20 level apart from temporarily,” Jonathan Webb, head of foreign-exchange strategy at a unit of Jefferies International Ltd. in London, said in a telephone interview yesterday. “Typically they were intervening between 1.2005 and 1.2010. If the referendum did pass it would make the SNB’s life much harder to sustain the floor.”
The implied volatility on one-month options for euro-franc climbed to 4.52 percent today, the highest since September 2013.
The plebiscite will ask voters whether the SNB should keep at least 20 percent of its assets in gold, up from 8 percent now. To get the bullion, the central bank may need to sell foreign reserves, much of them in euros. That selling would drive the euro lower versus currencies around the world, including the franc, threatening to break the currency limit.
–With assistance from Catherine Bosley in Zurich.
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 Mark McCord
