The Swiss franc's rebound from a three-month low against the euro shows that even bank charges for deposits and a lull in Europe's debt crisis cannot deter demand for the currency.
The Zurich-based Swiss National Bank (SNB) will keep its franc ceiling at 1.20 per euro today, according to all 14 analysts in a Bloomberg News survey. While the currency weakened after Credit Suisse Group said on December 3 it would set negative rates for franc cash balances, it pared almost all those losses in a three-day run of gains. A similar move by UBS yesterday failed to push it beyond last week's low of 1.2168 per euro.
Switzerland's central bank amassed record foreign currency holdings that reached 429 billion francs in September as it defended the ceiling imposed a year earlier. While pressure from investors seeking a haven has eased since a European Central Bank pledge to purchase government bonds, the SNB president Thomas Jordan has said it is too early to discuss abandoning the measure.
"The resilience of the franc is a testament to the fear lingering in markets," said Peter Rosenstreich, the chief foreign exchange strategist at Swissquote Bank in Geneva. "There are concerns that the problems of the European crisis are far from over. The SNB still has work to do."
SNB policymakers introduced the cap after the franc strengthened to near parity with the euro in August last year, hurting exporters such as Swatch Group, the largest Swiss watchmaker, and increasing the threat the economy would slip into deflation. Mr Jordan has said it will defend the measure with the "utmost determination" by buying "unlimited quantities" of euros.
The central bank, which holds a press conference at 10 am in Bern today following a meeting of its three-member governing board, will leave the benchmark interest rate at zero, according to all 18 economists in a Bloomberg News survey. "Demand for francs depends significantly on the risk appetite of investors," said Mr Jordan last month.
* Bloomberg News