Swiss Franc Weakens Versus Euro as Hildebrand Says Ready to Act

By Lukanyo Mnyanda and Simone Meier

Jan. 11 (Bloomberg) -- The Swiss franc weakened against the euro after the country’s central bank President Philipp Hildebrand said policy makers will seek to prevent “excessive appreciation” of the currency.

The franc dropped as much as 0.3 percent against the euro as Hildebrand said in a statement read by spokesman Werner Abegg from Zurich today that the Swiss National Bank will “monitor foreign-exchange market developments very closely” even as it doesn’t have a currency target. The franc had its biggest monthly gain versus the euro in a year during December as traders bet the central bank had relaxed its resistance to a stronger currency.

The comments “suggest the SNB is certainly not going to let euro-Swiss collapse from here,” said Geoff Kendrick, director of currency strategy in London at UBS AG. “The chance of SNB intervention has clearly increased again following those comments.”

The franc was 0.1 percent lower at 1.4768 as of 9:44 a.m. in Zurich, after trading as weak as 1.4795.

The SNB began selling the franc in March in an effort to ward off deflation and combat the nation’s economic slump. The currency strengthened to less than 1.50 per euro last month for the first time since the sales began on speculation the fading prospect of deflation would allow policy makers to tolerate the franc’s appreciation.

Consumer Prices

“Markets wanted to test and see the new limits,” said Fabian Heller, an economist at Credit Suisse Group AG in Zurich. SNB policy makers “certainly try to prevent volatility in the franc.”

The SNB may have sold the franc in currency markets today at the same time as the statement, Heller said. Abegg declined to comment on whether the SNB intervened.

Swiss consumer prices increased 0.3 percent in December from a year earlier, lower than the 0.5 percent advance forecast by economists in a Bloomberg survey, a government report showed last week. For the whole of 2009, prices fell 0.5 percent, the statistics office said.

“Deflation risks remain significant,” UBS’s Kendrick said.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Simone Meier in Dublin at smeier@bloombert.net