Swiss Franc Falls Most in 2 Months Amid ECB Stimulus Speculation

Dec. 2 (Bloomberg) — Switzerland’s franc weakened the most in almost two months versus the euro, extending declines since the nation rejected a plan to boost gold reserves that had tested a limit on the currency’s appreciation.

The franc reached a three-week low after the referendum’s Nov. 30 result blocked a proposal that the Swiss National Bank more than double its bullion holdings. While the immediate threat to the euro cap has eased, investors are waiting to see whether the European Central Bank implements quantitative easing stimulus, which may weaken the euro against its peers.

“We are still bearish on the franc and that’s based on the idea that the SNB will be defending the floor whatever happens,” Oliver Harvey, a strategist at Deutsche Bank AG in London, said. “There was some risk premia embedded in the referendum over the weekend, we did see a bit of a rally. We are probably seeing an unwind of that risk premia. The big question now is if the ECB does QE? Do you see pressure on the floor again?”

The franc weakened 0.13 percent to 1.20441 per euro at 4:06 p.m. London time, the biggest decline since Oct. 6. That’s within 0.4 percent of the 1.20-per-euro cap introduced by the SNB in September 2011 to protect the Swiss economy from a strengthening currency amid the euro-area debt crisis.

The franc has appreciated nearly 2 percent this year versus the euro and climbed to a two-year high of 1.2009 on Nov. 19.

The SNB is most likely to introduce negative rates should it be necessary to defend the limit, Harvey said. ECB officials meet to discuss policy on Dec. 4.

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