The euro fell to its lowest European Central Bank reference rate against the Swiss franc since July 21 on Oct. 19, despite higher policy interest rates in the euro area than in Switzerland.
The ECB set the rate at 0.9261 Swiss francs per euro, compared with 0.9272 on Oct. 16. The decline means each euro exchanged for fewer francs, indicating a stronger Swiss currency. The ECB’s figures are daily reference rates, not records of the lowest prices traded during either session.
The ECB raised its deposit rate to 2.50% in September, while the Swiss National Bank (SNB) kept its policy rate at 0% on Sept. 24. That gap has not prevented the franc from gaining against the euro in the latest ECB reading.
FXStreet reported that Commerzbank analyst Michael Pfister linked the franc’s recovery to demand for a haven amid worries about sovereign debt elsewhere in Europe. Pfister also considered further gains harder as the exchange rate nears levels he associates with earlier SNB warnings about intervention, FXStreet reported.
In its Sept. 24 decision, the SNB said it was prepared to act in foreign exchange markets if needed. It announced neither a specific euro-franc threshold nor an intervention. SNB Chairman Martin Schlegel said in March that the bank had become more willing to intervene during a rapid rise in the franc.
Schlegel also described the economic trade-off: A stronger franc eases inflation from imports while weighing on Swiss economic activity. Both effects matter as the SNB considers its response to the currency’s strength.
The ECB’s September increase was 25 basis points across all three of its key interest rates.
The SNB is due to release a summary of its September policy discussion on Oct. 22. The ECB’s next policy meeting concludes Oct. 29, followed by the SNB’s next policy assessment on Dec. 10.
