By TraderVox.com
Tradervox.com (Dublin) – The Swiss Franc dropped to its lowest level against the euro in almost eight months after the European Central Bank rolled out its bond purchasing program, reducing the need for safer assets. The franc registered a weekly drop against the 17-nation currency after data from the Swiss National Bank showed that the foreign reserves surged by the slowest pace in August, signaling that there is less need for interventions to weaken the currency further. Economists have also construed this as an indication that debt crisis in the euro region is softening. The SNB introduced a cap on the franc at 1.20 per euro in September last year to help boost exports in the country.
Bernd Berg, a Currency Strategist in Zurich at Credit Suisse Group AG, said that the decision to establish a bond buying program takes away the tail risks from the euro region hence speculators who are basing their bets on the floor are getting squeezed out of the safe haven position of the franc. The ECB President Mario Draghi announced the bond-purchase plan last week, where he indicated that the plan would focus on government bonds with maturities of a maximum of three years. The plan will only be available in the secondary market to countries that have asked for aid from the bailout fund.
A report last week from the Swiss National Bank indicated that its foreign-currency reserves expanded to 418.4 billion francs by the end of last month, up from 408.6 billion in July. Raghav Subbarao who is a Foreign Exchange Strategist at Barclays Plc in London, indicated that the increase is significantly lower than the previous three months hence signaling less pressure on the SNB to defend its cap.
The Swiss Franc dropped by 0.4 percent against the euro to trade at 1.2093 per euro on Friday, after depreciating to a low of 1.2155, the weakest it has been since January 9.
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