Greece comes to terms on extensions; havens suffer

February 23, 2015 10:15 AM

The Swiss franc weakened against most of its major peers as haven appeal receded after Greece reached a deal to extend its bailout funding, tempering speculation the nation may exit the currency bloc.

The franc extended declines amid speculation the central bank will cut interest rates to deter demand for Swiss assets after data suggested it stopped intervening in foreign-exchange markets. It was the worst performer during the past month in a basket of 10 developed-nation currencies. The dollar advanced before Federal Reserve Chair Janet Yellen testifies to Congress this week.

“Anything that’s good news in terms of the euro remaining intact is absolutely going to be helpful in terms of euro-swiss going higher,” Alan Ruskin, the global head of G-10 foreign exchange at Deutsche Bank AG in New York, said in a phone interview.

The franc dropped 1% to 94.78 centimes per dollar at 8:57 a.m. New York time, the biggest decline since Feb. 2. It weakened 0.5% to 1.07281 per euro.

Greece’s financing agreement, which requires creditors to validate a list of policies, may ease demand for francs as an alternative to euros. Switzerland’s currency rallied the most on record on Jan. 15, after the Swiss National Bank abandoned a cap at 1.20 francs per euro.

Franc Decline

Since then, the franc has started to weaken. It declined 7.7% versus during the past month, Bloomberg Correlation-Weighted Indexes show. It’s up 10% during the past six months.

Twenty-six of 28 economists in Bloomberg’s monthly survey forecast that the SNB will loosen policy if the economy weakens following its shock decision to give up the franc ceiling in January. Forecasts collected by Bloomberg show a gloomier outlook with growth seen slowing through June of this year. Twenty-two of the respondents said the SNB may cut the rate on sight deposits, currently at minus 0.75%, in tandem with a reduction in the benchmark interest rate.

SNB President Thomas Jordan, who has indicated that there’s room for a further rate cut, predicts that Swiss economic growth will lose pace. Analysts in the survey shared that view, forecasting a contraction in the three months through June.

“Greece’s debt problem may not be over, but at least the deal they’ve got over the weekend will distract the market from haven assets including the franc,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The franc weakness is also driven by its rate outlook.”

Bank Deposits

A report Monday showed the average of sight deposits of domestic banks at the SNB fell to 383 billion francs in the week ended Feb. 20, compared with 384.9 billion franc a week earlier.

Sight deposits are cash-like deposits commercial banks hold with the central bank. In the past, when the SNB intervened to defend the currency cap, lenders’ deposits at the central bank were credited with the amount of franc sold.

“Despite the sight deposits figure, we still think the threat of intervention is still there,” said Rabobank’s Foley.

Fed Chair Yellen is scheduled to testify in the Senate on Tuesday and in the House of Representatives the following day. She will probably provide an update on the central bank’s view after policy makers signaled at their Jan. 27-28 meeting they’re willing to keep interest rates low for longer given risks to the economy.

The dollar has risen against all except one of its 16 major peers since the Fed published the minutes of its January meeting on Feb. 18 as investors bet the central bank is still on course to raise interest rates this year. The Bloomberg Dollar Spot Index added 0.3% on Monday.

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