The Swiss franc strengthened to records, posting its biggest gain versus the euro since 2008, as surging bond yields in Italy and Spain stoked demand for safer assets outside the 17-nation currency region.
Switzerland’s currency rose against all of its 16 major peers tracked by Bloomberg, reaching all-time highs against the euro, dollar and pound as data showed the nation’s retail sales grew and manufacturing unexpectedly accelerated. Italian and Spanish 10-year bonds fell, pushing yields to euro-era records versus German bunds, amid concern that slowing growth will hamper efforts to trim the Mediterranean nations’ debt loads.
“When people want to deleverage and decrease exposure to peripheral countries such as Italy, we see demand for the Swiss franc rise,” said Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in London.
The Swiss currency appreciated 2.9 percent to a record 1.08467 per euro at 5:50 p.m. in London, the steepest intraday gain since Oct. 24, 2008 in the wake of Lehman Brothers Holdings Inc.’s collapse. It rallied as much as 2.5 percent against the dollar, the most since March 18, 2009, to 76.43 centimes. It surged as much as 2.6 percent against the pound to 1.2439.
Implied volatility, a key gauge of option prices that tends to rise in times of uncertainty, for euro-Swiss one-month options climbed to as much as 17.75 percent. That’s the highest level since Nov. 3, 2008.
Swiss retail sales rose 7.4 percent in June from a year earlier, according to the Federal Statistics office. The Swiss Purchasing Manager’s Index, a measure of manufacturing growth, rose to 53.5 in July, Zurich-based Credit Suisse Group AG said today. Economists had forecast a drop to 52.5, according to a survey conducted by Bloomberg.
“Strong data reinforces the view that people are hesitant to short positions on the Swiss franc,” said Galy. “Economic fundamentals will keep the franc favored as a haven. We may see further strengthening against the euro.”
Economy Minister Johann Schneider-Ammann said on July 31 that the strength of the franc would lead to “extremely tough years” for Swiss exporters and the tourism industry.
“The Swiss National Bank and corporate Switzerland are bearing the brunt of the wider debt problems in the U.S. and euro zone,” said Jane Foley, a senior currency strategist at Rabobank International in London. “We are already seeing the Swiss economy hurt by the currency strengthening. With further strengthening, it is going to prove more difficult for the economy as a whole and for individual companies.”
© Copyright 2017 Bloomberg News. All rights reserved.