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Swiss Franc Slips Most Since 2013 on Negative Rates; Pound Rises
December 18, 2014 (Bloomberg) — Switzerland’s franc weakened the most in 18 months versus the euro after the nation’s central bank introduced negative interest rates to defend the currency’s cap.
The shared currency fell for a second day against the dollar as the Swiss National Bank decision boosted speculation the European Central Bank will expand stimulus measures next year. A gauge of the dollar reached a five-year high amid signals the Federal Reserve’s pledge to be “patient” on interest rates means an increase next year. Colombia’s peso gained for a third day to lead emerging-market peers higher. The pound gained as volatility rose to a 15-month high.
Switzerland’s move was a “telltale sign that the SNB is cautious because of the ECB,” said David Song, a New York-based currency analyst at FXCM Inc. “The SNB is going to follow along with the ECB in terms of the easing cycle.”
The franc depreciated 0.3 percent to 1.20406 per euro as of 1:55 p.m. New York time after dropping as much as 0.7 percent to 1.20974, the weakest level since Oct. 10. The intraday decline was the most since May 2013.
The dollar appreciated 0.2 percent to 118.92 yen after surging 1.9 percent yesterday, the biggest advance since Oct. 31. The U.S. currency appreciated 0.6 percent to $1.2272 per euro and touched $1.2266, the strongest since Dec. 8. The yen strengthened 0.3 percent to 145.94 per euro.
The Bloomberg Dollar Spot Index rose 0.1 percent to 1,1222.32 after gaining 0.9 percent yesterday. The gauge, which tracks the currency against 10 major peers, touched 1,124.45, the highest level since March 2009 on a closing basis.
The pound climbed from the lowest level in more than a year versus the dollar after a report showed U.K. retail sales increased more in November than economists predicted. Sterling climbed 0.5 percent to $1.5656 after falling to $1.5541 yesterday, the lowest since September 2013.
The peso of Colombia jumped as the Fed saying it would be patient on the timing of raising interest rates added to demand for higher-yielding assets. The currency appreciated 3.2 percent to 2,323.48 per dollar.
A gauge of 20 emerging-market currencies rose a second day after plunging on Dec. 16 to the lowest level since 2002.
Nigerian foreign-currency dealers halted trading after a central-bank rule change meant to limit speculation against the plunging naira confused investors. The currency rose 1.3 percent to trim its loss this quarter to 11 percent.
JPMorgan Chase & Co.’s Global FX Volatility Index climbed to 10.10 percent, the highest level since September 2013.
“Volatility for currency markets continues to rise,” Camilla Sutton, chief foreign-exchange strategist at Bank of Nova Scotia, said by phone from Toronto. “We’re seeing large flows pushing around the major currencies less on fundamentals and more on liquidity and risk aversion.”
The franc weakened against all of its 16 major peers as the Zurich-based SNB introduced a negative deposit rate for the first time since the 1970s, saying it was prepared to buy unlimited foreign currency to shield the 1.20-per-euro cap and take further measures if needed.
The Swiss currency appreciated to within 0.07 percent of the cap yesterday, reaching the strongest level since September 2012. Pressure on the cap has bolstered speculation the ECB will start a large-scale sovereign-bond buying program, a measure that may weaken the euro against its peers.
SNB President Thomas Jordan cited turmoil in Russia as a “major contributory factor” to its rate decision.
“If money is moving out of these high-risk geopolitical countries, where do they tend to move this money to? Switzerland,” said FXCM’s Song. The rates move was “a way for the SNB to discourage that.”
The ruble fluctuated after jumping 11 percent yesterday as Russia’s central bank announced a range of measures designed to stabilize the financial system, a day after it unexpectedly increased the key interest rate to 17 percent from 10.5 percent.
Russia’s currency dropped 1.7 percent to 61.2235 per dollar after rising as much as 3.4 percent. It fell to a record 80.10 on Dec. 16 and has tumbled 46 percent versus the greenback this year, the biggest loss after Ukraine’s hryvnia among 174 currencies tracked by Bloomberg.
The dollar has gained against all but 15 global currencies in 2014 on speculation the Fed would be first major central bank to lift borrowing costs.
Fed Chair Janet Yellen did nothing to dispel those thoughts yesterday, indicating after the central bank’s policy meeting that it was on course to raise interest rates next year even as the official statement said policy makers would be patient. The key rate has been held at zero to 0.25 percent since 2008.
“A nifty balancing act,” with a dovish statement balanced by more hawkish comments from Yellen, said Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York. “The takeaway was that the Fed will hike interest rates in 2015.”