Swiss franc down on reported Swiss National Bank dollar buying following parity break

LONDON — The Swiss franc fell Thursday on reports that the country's central bank intervened in foreign exchange markets to stem the export-sapping appreciation in the currency.

By early afternoon London time, the dollar was up 0.6 percent on the day at 1.0026 Swiss francs, having fallen below parity on Wednesday for only the second time ever.

Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS, credited the advance to apparent dollar buying from the Swiss National Bank — that would be its fourth intervention in the markets this year. In its previous forays into the markets, the central bank had focused on affecting euro-franc exchange rate, as most Swiss trade is with the 16 countries that use the euro.

"As this week's Swiss franc strength against both the euro and dollar has been a function of the greenback's weakness in thin holiday conditions, the SNB acted to push the dollar back above parity this morning," he said.

The euro was up at 1.5100 Swiss francs, having fallen to near 1.50 Swiss francs earlier. If the Swiss franc rises too much against the euro, then it threatens to derail the country's fledgling economic recovery — like the eurozone, the Swiss economy is expected to grow next year, albeit at a fairly modest pace.

The dollar has been under pressure in recent days after the U.S. Federal Reserve indicated that it will keep borrowing costs at super-low levels for a while yet and that the currency's recent decline has been "orderly." In addition, the financial problems facing Dubai World have reined in investors' appetite for risk, causing a sharp sell-off in stocks markets.

Kit Juckes, chief economist at ECU Group, said the developments in Dubai and in the currency markets are related as the fall in risk appetite has pushed money into safe haven currencies such as the Swiss franc and the yen.

This, he said, is "testing the tolerance of central banks to see their currencies cause further damage to their economies."

Earlier, the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a fresh 15-month high of $1.5141. By early afternoon London time, the dollar had recouped some ground and was trading at 86.74 yen, down 0.7 percent on the day, while the euro was 0.5 percent lower at $1.5064.

UBS's Mohi-uddin said the SNB is likely to keep acting to prevent Swiss franc gains if moves in the dollar drag the euro towards 1.50 Swiss francs again.

The Swiss National Bank declined to comment.