Franc falls to lowest since 2011 after CPI data

Switzerland’s franc fell to the weakest level in more than a year against the euro after a government report showed consumer prices extended their longest slump in at least four decades.

The Swiss currency declined for a second day after Zuercher Kantonalbank said yesterday it reserved the right to set negative interest rates on franc deposits for its retail customers. The Swiss National Bank imposed a ceiling for the franc of 1.20 versus the euro in September 2011 to combat the threat of deflation.

“If traders needed any other reason to go long on the euro versus the franc, they got it today with the release of Swiss CPI,” Peter Rosenstreich, chief foreign-exchange strategist at Swissquote Bank SA in Geneva, wrote today in a note to clients. A long position is a bet an asset will gain.

The franc declined 0.4 percent to 1.2183 per euro as of 2:51 p.m. in London after depreciating to 1.2201, the weakest level since December 2011. The Swiss currency slipped 0.1 percent to 91.32 centimes per dollar.

Consumer prices dropped 0.4 percent from a year earlier after falling 0.4 percent in November, the Federal Statistics Office said in a statement. That’s the 15th month of annual declines, the longest stretch since at least 1971, according to data compiled by Bloomberg. Prices fell 0.2 percent from the previous month. Economists forecast an annual drop of 0.3 percent, according to a Bloomberg News survey.

The statistics office said prices fell 0.7 percent last year, and it estimates inflation will be 0.2 percent in both 2013 and 2014.

‘High’ Franc

While the Swiss currency has weakened since the European Central Bank pledged in August to purchase government bonds of distressed nations to cap borrowing costs, the SNB has said the franc remains “high” and weighs on companies in Switzerland.

“The euro-franc minimum exchange rate of 1.20 has not staved off deflation threats and has fueled speculation that further SNB action can be expected,” Rosenstreich wrote in the note. “Under normal circumstance we should have shrugged off such market chatter -- in line with our view that additional policy adjustment is unlikely -- but with the euro currently in high demand this would be a prime opening to act,” he said, adding this may be done by raising the cap or with negative interest rates.

The franc has slumped 0.7 percent this week versus the euro, the biggest drop since the period ended Sept. 7.

Switzerland’s currency has strengthened 1.3 percent over the past month, according to Bloomberg Correlation-Weighted Indexes which track performance among 10 developed-nation currencies. The euro rose 1.7 percent over the same period and the dollar fell 0.6 percent, the indexes show.

The cost of Swiss imported consumer goods dropped 2 percent from a year ago and 1.2 percent from the previous month, today’s report showed. Prices of domestic goods increased 0.1 percent in the year and the month. Under a European Union harmonized method, consumer prices fell 0.3 percent from a year earlier.

Bloomberg News

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