Swiss Franc Sees Influx of Worried Investors

Friday, 08 Jun 2012 09:23 AM

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The Swiss National Bank moved to halt the franc's strengthening trend, the product of nervous investors ditching euro positions and running to Switzerland in flight to safety.

Swiss reserves surged to 303.8 billion Swiss francs in May from 237.6 billion francs in April, which shows Switzerland's central bank was buying euros in the currency markets in effort to keep the franc from getting too strong, The Wall Street Journal reports.

Swiss National Bank spokesman Walter Meier told the Journal the bank's intervention in foreign exchange markets sought to stop the euro from falling under 1.20 francs per euro, the bank's lower limit for the common currency.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Markets are still digesting the move.

"The market is trying to figure out how much of the gains were due to valuation effects and how much of it was due to buying foreign currencies," says Geoffrey Yu, a currency analyst at UBS in London, the Journal adds.

The Swiss economy has held up well despite the turmoil gripping its eurozone neighbors.

"It's quite a significant increase," Alessandro Bee, an economist at Bank Sarasin in Zurich, says of the increase in reserves, Bloomberg reports.

"The euro crisis is decisive — if there's a further worsening, the SNB will be forced to remain active on markets."

Currency markets will keep a sharp eye on the Swiss National Bank and test its resolve to keep the franc from strengthening more.

"This strong increase in currency reserves in May shows that doubts about the floor's credibility are emerging and that pressure is increasing on the SNB," says Julien Manceaux, an economist at ING Group in Brussels, Bloomberg adds.

"However, for the moment, there is no reason to believe the floor could be broken even under higher pressure."

In Europe, Greece will hold parliamentary elections on June 17 and worries persist that enough left-wing politicians will come into power and form a coalition government that will reject austerity measures tied to bailout funding, which could open the door to a Greek exit from the currency zone.

Spain, meanwhile, is coming under pressure as investors are growing wary over Madrid's ability to prop up its banking sector and help regional government with their own debt burdens.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown



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