Swiss Franc Hits Highest Level in Two Years on Trade Tensions

(Bloomberg) -- The Swiss franc advanced to its strongest level against the euro since 2017 after U.S. President Donald Trump escalated trade tensions with China and fueled demand for haven currencies.

The franc dipped below the crucial 1.10 threshold against the shared currency, which analysts at Commerzbank think could prompt the Swiss National Bank to intervene and curb the currency's appreciation. Investors are seeking refuge after Trump threatened additional trade tariffs against Beijing and the economic outlook darkened for the U.K. and Europe.

“The nervousness in view of a renewed escalation of the trade conflict, globally weakening growth and the uncertainty about the Brexit ensures that the franc remains in demand as a safe currency haven,” said Commerzbank strategists, including Esther Reichelt and Antje Praefcke.

Sight deposits at the SNB posted their biggest increase since 2017 last week, suggesting it sold the franc to contain a rally against the euro.

Swiss policy makers also face a challenge from the European Central Bank's plans for monetary easing as it seeks to prop up the region's faltering economy. This would make it even harder for the SNB to control the Swiss currency, according to Commerzbank.

“Market participants are already expecting the SNB to cut its key rate towards 1% in September, so as to keep up with the ECB,” Reichelt said. “We question whether that is going to be sufficient to limit the appreciation pressure on the franc.”

The franc touched 1.0932 per euro Friday in London, its strongest level since July 2017. The currency was set for a weekly advance of more than 1%.

To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, William Shaw

©2019 Bloomberg L.P.