Currency Balances Between France and Switzerland Gyrate Enormously Pitting Traders Against Each Other

“For the first time in seven months, traders are testing the Swiss National Bank’s determination to limit the franc’s strength against the euro as Europe’s resurgent debt crisis drives up demand for safer assets.

The franc breached the central bank’s cap of 1.20 to the euro on April 5 and April 9, and options show investors are predicting even more appreciation. It jumped 1.1 percent versus nine peers in a basket of currencies in March, the biggest gain since July, and is up 1.8 percent from a nine-month low on Jan. 11, according to data compiled by Bloomberg.

Demand for Swiss assets is so strong that investors accepted negative yields at an auction of six-month government bills last week as Spain’s borrowing costs rose toward levels that prompted bailouts for Greece, Ireland and Portugal. The franc is climbing against its peers even after the Swiss central bank repeated a commitment to prevent increases that threaten to bring about deflation and hurt exports.

“As long as there is risk aversion tied to rising euro- region stress, investors will want to buy francs,” Peter Frank, a London-based currency strategist at Banco Bilbao Vizcaya Argentaria SA, Spain’s second-largest lender, said in an interview on April 10. “The Swiss franc is an extremely liquid currency, it is tradable throughout all time zones and the economy is very resilient.”

The franc will weaken to at least 1.23 per euro over the next three months as the central bank steps up efforts to counteract its strength, he said…”

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