Franc Strengthens as Slump in Stocks Spurs Demand

EUR/CHF Back in the 1.22’s

The Swiss Franc has reached its strongest level in almost 6 weeks against the euro as a slump in stocks has spurred demand for safer assets. Against sterling, the Franc is trading in the 1.44’s, having been up in the 1.49’s in early May. The Swiss National Bank set a ceiling of 1.20 per euro back in September 2011 to stop the currency strengthening too much as investors sought a safe-haven from the European debt crisis. Recently there has been speculation that the SNB would raise the ceiling to 1.25 in an attempt to aid competitiveness which has kept the franc’s gains in check.

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The Stoxx 600 index has continued to slide today, on track for a fourth successive day of losses. The index has lost almost 4% this month alone, with investors concerned that the major central banks may start curtailing their stimulus measures which have been credited for the sharp rally earlier in the year.

“We’re still in a world where the main driver for market direction is what central banks are saying and doing, and you can’t ignore that. The past two-to-three weeks prove that,” said Neil Wilkinson, senior fund manager at Royal London Asset Management.

“The corporate news flow is quiet after the first-quarter earnings season ended, and with a lack of hard data, markets are prone to speculate about the Fed. Another key point is that volumes are thin, hence any moves are amplified,“ he added.

One of the major losers has been the Royal Bank of Scotland whose share price dropped 4.2% on Thursday, effectively wiping off £2 billion, after it was announced late on Wednesday night that Stephen Hester would be stepping down as CEO. Shares in other banks followed suit with the Spanish Banco Popular losing 4% and SocGen losing 1%.

As RBS is a publically owned institution, the news came as a blow to all taxpayers as a fall of that degree means the total value of all taxpayers shares has fallen by nearly £2 billion. To add insult to injury, the bank also announced that it would be cutting 2,000 from its investment arm. Investors are up in arms over the handling of Mr. Hester’s departure, with Investec analyst Ian Gordon saying:

“Despite a wholly unhelpful political and regulatory backdrop, Hester and van Saun have done an admirable job in terms of the ‘repair’ and restructuring of RBS.”

As s result, the Swiss currency gained support from a generally defensive mood surrounding global equity markets, tracking movements in the Japanese Yen which has also gained as a result of its status as a safe-haven. Interestingly, the Franc has remained resilient even as commodities prices have started to recover.

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