FOREX-Dollar inches higher as U.S. rate hike eyed despite Fed minutes

* Dollar edges higher as traders eye mid-year rate hike

* Optimism for Greece debt deal caps euro losses

* Dollar hits fresh over-one month high against franc (Updates prices, adds comments)

By Sam Forgione

NEW YORK, Feb 19 (Reuters) – The U.S. dollar edged higher against major currencies on Thursday after traders discounted Wednesday’s cautious minutes from the latest Federal Reserve policy meeting, while optimism for a Greece debt deal limited the euro’s losses.

The dollar rebounded against the yen and hit a more than one-month high against the Swiss franc after traders reverted to the view that the Fed could hike interest rates by June despite the minutes showing officials were concerned that raising rates too soon could damage the U.S. economic recovery.

Analysts said the minutes were somewhat dated since they reflected the Fed’s thinking before the release of a stronger-than-expected U.S. payrolls report for January.

“The 2015 rate hike very much remains on the table,” said Kathy Lien, managing director at BK Asset Management in New (KOSDAQ: 160550.KQ – news) York. “Yesterday’s pullback in the dollar simply attracted bargain-hunters.”

The euro weakened after Germany rejected Greece’s request for a six-month extension to its euro zone loan agreement as it races to avoid running out of money within weeks. Persistent optimism that Greece will reach a deal with its international lenders, however, kept the euro from losing too much ground.

“A deal is very much likely,” said David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut. “No one wants to see a Greek exit.”

With its program due to expire in little more than a week, Athens urgently needs to secure a financial lifeline to keep the country afloat beyond late March. Euro zone finance ministers will meet on Friday afternoon in Brussels to consider the request.

The euro was last down 0.29 percent against the dollar at $ 1.13645. The dollar was last up 0.16 percent against the yen at 118.975 yen. The dollar was up 0.78 percent against the Swiss franc at 0.94975 franc. The dollar hit 0.94990 franc, its highest since the Swiss National Bank scrapped a 1.20 francs per euro cap on Jan. 15.

Analysts have speculated that the SNB has intervened to weaken the franc since the cap was removed, with some on Thursday saying the central bank could be buying the greenback.

“The new tactic of the SNB is to intervene quietly,” Lien said.

The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.25 percent at 94.436.

On Wall Street, the benchmark S&P 500 stock index was nearly flat. (Reporting by Sam Forgione; Editing by Dan Grebler and James Dalgleish)

FOREX-Euro rallies as traders speculate on SNB intervention

* Swiss franc at weakest vs euro since SNB scrapped cap

* Euro hit overnight after Greece loses ECB safety net

By Jemima Kelly

LONDON, Feb 5 (Reuters) – The euro rose strongly across the board on Thursday, gaining more than 1 percent against the Swiss franc, as traders speculated that the Swiss National Bank was again buying euros in order to weaken the franc.

Having fallen around two U.S. cents late on Wednesday after the European Central Bank said it would no longer accept Greek bonds in return for funding, the euro gained around 0.7 percent versus the dollar on Thursday, trading at $ 1.1420.

Against the Swiss franc, the euro rose to 1.06425 francs, its strongest since Jan. 15, when the SNB stunned markets by scrapping the three-year-old cap on its currency.

Since then, there has been persistent talk that the SNB has still been intervening. Swiss newspaper Schweiz am Sonntag reported on Sunday that the SNB was informally aiming for a rate of 1.05-1.10 francs per euro, citing sources close to the bank.

The SNB on Thursday again declined to comment on whether it was intervening in the market.

“I do think they (the SNB) are intervening at this point,” said Peter Rosenstreich, chief FX analyst at Swissquote in Geneva.

“But is this part of a managed strategy to control euro/Swiss (franc)? I think it’s way too early to be discussing that. At this point they’re just trying to stabilise the downside and take advantage of any opportunities to push (the euro) higher.”

Against the yen, the euro was up 0.8 percent at 134.09 yen , still some way off a near two-week high of 135.35 yen set on Wednesday.

The shared currency had earlier been lifted by data showing German industrial orders surged far more than forecast in December, hitting their highest level since April 2008.

“We still think the main driver of the euro over the next few months will be QE, and policy divergence with the UK and the U.S.,” said Stephen Saywell, global head of FX strategy at BNP Paribas in London.

Losses against the euro helped the dollar fall around 0.7 percent against a basket of currencies, extending a more than 1.5 percent decline over the past two weeks.

The Australian dollar also rose against the greenback, trading at $ 0.7811, up 0.8 percent on the day and edging further away from a six-year trough of $ 0.7627 set earlier in the week.

FOREX-Dollar up vs franc as SNB eyed but slips vs euro, yen on data

* SNB speculation, report of new exchange rate band hurt franc

* Dollar falls against euro, yen on U.S. economic data (Recasts throughout; changes byline, dateline, previous LONDON)

By Sam Forgione

NEW YORK, Feb 2 (Reuters) – The U.S. dollar hit a more than two-week high against the Swiss franc on Monday on signs that the Swiss National Bank has intervened to weaken the franc, but moved lower against the euro and yen on disappointing U.S. economic data.

The euro also hit a more than two-week high against the franc in the wake of a report from a Swiss newspaper on Sunday stating that the SNB was informally aiming for a rate of 1.05-1.10 francs per euro, citing sources close to the bank.

Data on Monday showed bank deposits with the SNB rose in the week ended Jan. 30, fueling speculation that the Swiss central bank has been active in keeping a lid on the franc.

The speculation that the SNB has intervened in the market comes after it shocked markets on Jan. 15 by removing its cap of 1.20 francs per euro, a move which initially sent the Swiss franc skyrocketing against both the euro and the dollar.

“The SNB in general feels like the Swiss strength is extremely overdone, and based upon that view, it looks like they’re trying to move the market to a level they believe is more correct,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.

The dollar slipped against the euro and the yen on Monday, after data showed U.S. national factory activity for January as well as consumer and construction spending for December fell short of expectations. The reports came on the back of Friday’s weaker-than-expected headline U.S. fourth-quarter gross domestic product reading.

“Given how overstretched the dollar has become, softer reports are weighing on the currency,” said Kathy Lien, managing director at BK Asset Management in New York. She said the recent data suggested the U.S. Federal Reserve may wait longer before raising rates from rock-bottom levels, driving profit-taking in the dollar’s recent gains.

The dollar last traded 0.87 percent higher against the franc at 0.9253 franc, having pared gains from its session high of 0.9347 franc. The euro was last up 0.62 percent against the greenback at $ 1.13515.

The dollar was trading 0.24 percent lower against the safe-haven yen at 117.22 yen, but was up from a more than two-week low of 116.64 yen hit earlier in the session.

The dollar index, which measures the greenback against a basket of six major currencies, was down 0.37 percent at 94.452.

(Reporting by Sam Forgione, editing by G Crosse; additional reporting by Anirban Nag in London)

FOREX-Swiss franc drops to 2-week low on talk of SNB hand, informal band

(Recasts, adds fresh quotes, details)

* Swiss franc weakens nearly 2 pct, talk of informal band

* U.S. ISM manufacturing, Markit’s eurozone PMI in focus

By Anirban Nag

LONDON, Feb 2 (Reuters) – The Swiss franc hit a two-week low against the euro and the dollar on Monday, on talk that the Swiss National Bank was intervening to weaken the currency and on a report that it was targeting a new informal band.

A Swiss newspaper, Schweiz am Sonntag, reported on Sunday that the SNB is unofficially targeting an exchange rate of 1.05-1.10 francs per euro, citing sources close to the bank. A spokesman for the central bank declined to comment on the story.

On Jan. 15, the SNB shocked markets by removing a cap of 1.20 francs per euro, a move that saw the Swiss franc initially surge more than 40 percent. It has since given up some of those gains and now trades about 13 percent higher against the euro compared to just before the cap was removed.

Data released on Monday showed that bank deposits with the SNB rose in the week ending Jan. 30, fuelling speculation that the central bank has been active.

The euro was up 1.9 percent on the day against the Swiss franc at 1.05800 francs while the dollar was higher by a similar margin at 0.9345 francs.

“It is chatter that there is an informal band and the sight deposits data suggests that the SNB is there in the market,” said Manuel Oliveri FX strategist at Credit Agricole.

“The SNB is trying to smoothe the flows and the volatility. Also we are seeing that our clients are staying away from this currency because of the all the volatility that we have seen.”

Citi said in a note that the report of an informal target for the euro/Swiss franc is likely to “reinforce the perception invisible hands have encouraged the Swiss franc lower.”

Against the dollar, the euro was 0.35 percent higher, trading at $ 1.13155, taking some comfort from its gains against the Swiss franc and purchasing managers’ surveys showing manufacturing growth in Ireland, Spain and the Netherlands.

But gains are likely to be capped on concerns that Greece is yet to persuade a sceptical Europe to accept a new debt agreement.

The dollar recovered from a two-week low of 116.64 yen , to trade 0.2 percent higher at 117.635 yen.

Dollar buying by Japanese importers helped the greenback, but analysts said the dollar looks vulnerable after data on Friday showed the U.S. economy slowed in the fourth quarter, driving Treasury yields to new lows.

“Now that U.S. GDP growth has come lower than expected, markets are paying more attention to other U.S. data, to be released in the coming days,” said Kengo Suzuki, chief forex strategist at Mizuho Securities.

Among key numbers, U.S. ISM non-manufacturing data will be out on Monday and the latest non-farm payrolls report is due on Friday.

(Additional reporting by Ian Chua and Tomo Uetake; Editing by Susan Fenton)

FOREX-Swiss franc hits 2-week low on talk of SNB involvement, informal band

(adds fresh quotes, details, updates)

* Swiss franc weakens 2 pct vs euro, talk of informal band

* U.S. ISM manufacturing in focus, dollar climbs vs yen

By Anirban Nag

LONDON, Feb 2 (Reuters) – The Swiss franc hit a two-week low against the euro and the dollar on Monday, on signs that the Swiss National Bank was intervening to weaken the currency and a report it was targeting a new exchange rate band.

Swiss newspaper Schweiz am Sonntag reported on Sunday that the SNB was informally aiming for a rate of 1.05-1.10 francs per euro, citing sources close to the bank. A spokesman for the SNB declined to comment.

On Jan. 15, the SNB shocked markets by removing its cap of 1.20 francs per euro, initially sending the Swiss franc up more than 40 percent. It now trades 13 percent higher than the cap.

Data on Monday showed bank deposits with the SNB rose in the week ending Jan. 30, fuelling speculation that the central bank has been active in keeping a lid on the franc.

Also, the Swiss purchasing managers’ index fell to 48.2 in January, pointing to a manufacturing contraction in the export-led economy.

The euro rose 2 percent on the day against the Swiss franc to a high of 1.0591 francs while the dollar was up 1.5 percent at 0.9345 francs.

“It is chatter that there is an informal band and the sight deposits data suggests that the SNB is there in the market,” said Manuel Oliveri FX strategist at Credit Agricole.

“The SNB is trying to smooth the flows and the volatility. Also we are seeing that our clients are staying away from this currency because of all the volatility.”

Citi said in a note the newspaper report was likely to “reinforce the perception invisible hands have encouraged the Swiss franc lower.”

Against the dollar, the euro was 0.4 percent higher, trading at $ 1.1325, taking comfort from gains against the Swiss franc and purchasing managers’ surveys which showed euro zone factory activity still growing in January.

But gains will be limited by concerns that Greece has yet to persuade a sceptical Europe to accept a new debt agreement.

“The more prolonged the negotiations between Greece and the EU, the more pressure we would expect on the euro,” Morgan Stanley analysts said in a note. “We look to use euro/dollar rebounds into the $ 1.14 area to establish bearish positions, targeting $ 1.07.”

The dollar recovered from a two-week low of 116.64 yen , to trade 0.2 percent higher at 117.65 yen.

Buying by Japanese importers helped the dollar, but analysts said the currency looked vulnerable after data on Friday showed growth in the U.S. economy slowed in the fourth quarter, driving Treasury yields to new lows.

Among key U.S. numbers, ISM non-manufacturing data will be out on Monday and a jobs report on Friday.

(Editing by Susan Fenton and John Stonestreet)

Post Mortem on the Swiss Franc’s Euro-Peg

On January 15, 2015 the Swiss National Bank (SNB) announced an end to its three-year-old cap of 1.20 franc per euro. (The SNB introduced the cap in September 2011.) The SNB has also reduced its policy interest rate to minus 0.75 percent from minus 0.25 percent. The Swiss franc appreciated as much as 41 percent to 0.8517 per euro following the announcement, the strongest level on record — it settled during the day at around 0.98 per euro.

With Money Creation, It’s All Relative

We suggest that the key factor in determining a currency rate of exchange is relative monetary pumping. Over time, if the rate of growth of the money supply in country A exceeds the rate of growth of the money supply in country B then that country’s currency rate of exchange will come under pressure versus the currency of B, all other things being equal.

Whilst other variables such as the interest rate differential or economic activity also drive the currency rate of exchange, they are of a transitory and not of a fundamental nature. Their influence sets in motion an arbitrage that brings the rate of exchange in line with the influence of the money growth differential.

We hold that until now the rise in the money growth differential between Switzerland and the European Monetary Union during July 2011 and April 2012 was dominating the currency rate of exchange scene. (It was pushing the franc down versus the euro.) The setting of a cap of 1.20 to the euro to supposedly defend exports was an unnecessary move since the franc was in any case going to weaken. The introduction of the cap however prevented the arbitrage to properly manifest itself thereby setting in motion various distortions. (Note again the money growth differential was weakening the franc versus the euro.)

A fall in the money growth differential between April 2012 and April 2013 is starting to dominate the currency scene at present, i.e., it strengthens the franc against the euro. So from this perspective it is valid to remove the cap and allow the arbitrage to establish the “true” value of the franc. (This reduces the need to pump domestic money in order to defend the cap of 1.20.) Observe that as opposed to 2011, this time around, by allowing the franc to find its “correct” level the SNB — it would appear — has decided to trust the free market.

Note that since April 2013 the money growth differential has been rising — working toward the weakening of the franc versus the euro — and this raises the likelihood that the SNB might decide again some time in the future on a new shock treatment.

We hold that by tampering with the foreign exchange market the SNB sets in motion fluctuations in the growth momentum of money supply (AMS), and this in turn generates the menace of boom/bust cycles. (Note the close correlation between the fluctuations in the growth momentum of foreign exchange reserves, the SNB’s balance sheet, and AMS.)

Also, observe that by introducing the cap and then removing it — contrary to its own intentions — the SNB has severely shocked various activities such as exports. Note that the SNB is supposedly meant to generate a stable economic environment.

Image source: iStockphoto.

Euro Climbs as SNB Says It’s Ready to Intervene; Yen Advances

The euro strengthened after a Swiss National Bank official said it remained ready to intervene in markets, sparking broader gains for the shared currency.

The euro climbed against 13 of its 16 major peers even as it reversed its advance versus the franc. The yen rose against the dollar after Japan’s economy minister said neither the government nor the central bank has committed to a strict schedule for achieving 2 percent inflation. A gauge of the U.S. dollar was close to its highest level on record amid speculation Federal Reserve policy makers meeting this week will stick to their stance that suggests an interest-rate increase this year.

“The move on euro-Swiss is grabbing attention,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “It’s generating a bigger euro move. It’s unclear, but obviously there’s going to be a lot of discussion around what the SNB is going to do next. I don’t think there’s enough here to suggest any clear influence.”

The euro rose 0.4 percent to $ 1.1279 at 6:17 a.m. New York time after falling to $ 1.1098 on Jan. 26, the least since September 2003. The shared currency was little changed at 133.20 yen. The euro weakened 0.1 percent to 1.01652 francs after appreciating as much as 2.3 percent to 1.03826 francs, the strongest level since the SNB lifted its currency cap on Jan. 15.

The franc had traded near parity against the euro since the SNB sent ripples through markets on Jan. 15 by abandoning its cap of 1.20 francs per euro and increasing a charge on deposits. That pushed the Swiss currency as much as 41 percent higher against the euro to the strongest level on record.

SNB Comment

“We’re fundamentally prepared” to intervene again, SNB Vice President Jean-Pierre Danthine said in an interview with Tages-Anzeiger newspaper published on Tuesday. The Tribune de Geneve and 24 Heures newspapers published similar comments. Danthine told the latter that the current euro-franc exchange rate wasn’t justified.

“Everyone is watching for the SNB, but we are still skeptical,” said Peter Rosenstreich, head of market strategy at Swissquote Bank in Gland, Switzerland. “The euro is finding buyers across the board, so this could be more of a short squeeze. Some are citing comments by Danthine but I doubt that would push euro-Swiss higher. It’s more like franc traders seeing shadows.”

The euro has tumbled 4.6 percent this year, the worst performance after the Canadian dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the European Central Bank last week announced a quantitative easing, or bond buying, plan. The yen has advanced 4.9 percent in 2015 and the U.S. dollar gained 3.2 percent.

Fed Policy

The Fed is forecast to leave interest rates unchanged at a two-day policy meeting that begins today, a Bloomberg News survey of economists shows. The chance of a interest-rate increase by the October meeting was 52 percent, futures data showed.

“The U.S. dollar remains supported, and that will continue for the foreseeable future,” said Robert Rennie, head of currency and commodity strategy in Sydney at Westpac Banking Corp. “That’s being driven by other central banks needing to be much more aggressive.”

The Bloomberg Dollar Index, a gauge of the currency’s performance against is major peers, was little changed at 1,159.98. It closed at a record 1,161.42 in New York on Jan. 26.

Inflation Target

The yen strengthened as Economy Minister Akira Amari told reporters in Tokyo that neither the government nor the Bank of Japan has set a specific time for achieving the inflation target, and the central bank’s expression of “about two years” may include the possibility of taking longer than two years.

“The government seems to have relaxed its attitude toward the inflation target,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo. “Speculation about additional Bank of Japan easing is getting pushed back, prompting some yen-buying.”

Japan’s currency strengthened 0.3 percent to 118.08 per dollar.

The ruble rebounded from a plunge Monday when Standard & Poor’s lowered Russia’s credit rating one step to BB+, putting it below investment grade for the first time in a decade.

The currency strengthened 1.4 percent to 67.83 versus the dollar, after declining 6.6 percent on Monday, the most since Jan. 5.

To contact the reporter on this story: David Goodman in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Keith Jenkins

Goldman Sachs Goes From Bull to Bear on EUR/CHF

For the past few years, forecasting the euro against the Swiss franc was a trivial exercise. Trusting the Swiss National Bank’s commitment to support the 1.20 level between the two currencies, banks consistently rolled over their views expecting the euro to only slightly budge against its Swiss neighbor.

But the forecasting all changed on Jan. 15, when the SNB shocked markets by scrapping its three-year-old exchange rate floor.

As the SNB changed the rules of the game, analysts rushed to re-calibrate their years-old assessment of the fair value of the currency, with most of them expecting the euro to head towards parity. A euro is currently worth 1.004 francs.

But Goldman, whose currencies forecasts are regarded as an industry reference, has now pronounced its latest forecast on EUR/CHF. It’s slashed it by about 26% from a previous forecast, made at the beginning of 2013, when it expected the euro to climb to a punchy 1.28 against the franc.

The bank now expects the euro to fall to 0.98, 0.96 and 0.95 against the franc in three, six and 12 months. That puts it at the bearish end of expectations for the euro. “The near term path of EUR/CHF is lower, given that the safe haven status of the Swiss Franc has emerged stronger from recent developments,” Robin Brooks, Fiona Lake, George Cole and Michael Cahill said in a note.

According to the bank, the SNB has sent two different messages with its decision to “de-peg”.

Not only it has changed expectations for the euro but it has also showed it doesn’t like direct intervention anymore, “in essence shifting monetary policy back to interest rates from balance sheet expansion.”

Looking further along the line, Goldman thinks the euro will revert to around parity by the end of 2016 and to 1.10 one year later.

It’s maybe worth noting that a bearish view on the franc was one of the bank’s key trade ideas for 2015, and that’s already been undone as the currency has surged higher.

Critical ECB Meeting Looms As Euro Lies Low

As the euro tests 11-year lows against the greenback on Monday, worldwide investors await the outcome of this week’s all-important European Central Bank (ECB) meeting. Will the ECB take its most aggressive action to date to slay the beast that is deflation and save the flagging eurozone’s economy with a sufficient bond-buying program?

Rate divergence is a major trading theme for 2015. Yet no one expected the imminent impact of varying rate policies so early in the new calendar year. For months the market has been focusing on the Federal Reserve or the Bank of England to hike interest rates, but both banks have pushed the timing to do so further out the curve. Now there’s a real possibility that the ECB will introduce its own quantitative easing (QE) policy. In light of these events, investors have to broaden their horizons to include Tier II central bank policies, the proactive measure undertaken by the Swiss National Bank (SNB) last week, and the impacts that the Swiss action may have on other national central banks in the euro region. Currently, Scandinavian banks are joining the Danish government in trying to persuade offshore investors that the Nordic countries will not copy the Swiss and drop their euro pegs — the diverging rate storyline has gotten far more interesting.

Markets Await ECB Decision on QE

The next five trading sessions will be dominated by central banks, as various governors, presidents, and policymakers remain front and center throughout the week. While the Banks of Japan and Canada take the lead in the first half of the week, investors will be focusing intently on President Mario Draghi and the ECB on January 22, when the possible introduction of a sovereign debt-buying program tops the bank’s agenda.

Although the consensus is for ECB interest rates to remain unchanged, the market has been pricing for expectations that it will extend its program of asset purchases to include sovereign as well as corporate bonds. Let’s hope so, especially after the SNB’s costly action that did away with the CHF currency cap last week. It was a non-transparent policy move, and the repercussions will be felt for many months to come. The surprise Swiss decision indicates that investors cannot afford to be complacent with central bank rate decision announcements any more.

SNB’s Damage Control Ongoing

Investors were sideswiped not once, but twice last Thursday when a number of central banks altered their policies. The Reserve Bank of India (RBI) eased monetary policy by -25bps to +7.75% just two weeks before its regularly scheduled meeting, and has set off expectations of more cuts to come. At the same time, the SNB removed the three-and-a half-year-old currency cap of €1.2000. President Thomas Jordan’s actions (an about-turn from all the public rhetoric) shocked markets and it had a massive global impact. Swiss officials have been in damage control ever since, but they expect markets to stabilize, adding the cap on the franc was no longer justified as the Swiss economy was improving. Jordan also said the “exchange-rate situation will remain under consideration in future decisions, and the minimum rate risked loss of monetary conditions through an inflated balance sheet.” Can anyone safely decipher this cryptic message?

The SNB undertaking was an historic outcome and move, which both dealers and investors will be tallying for weeks to come. The lack of transparency by the SNB’s decision has unnerved investors and possibly changed the central bank rules for the lesser knowns. The SNB has lost much street credibility and its actions still raise the possibility of future unanticipated moves by other central banks.

Banks Battle Speculation That Denmark’s Euro Peg Is at Risk

Banks in Scandinavia are joining the Danish government in trying to persuade offshore investors that the Nordic country isn’t about to copy Switzerland and drop its euro peg.

SEB AB, the Nordic region’s largest currency trader, said it’s been fielding calls from hedge funds wondering whether Denmark might be next after the Swiss National Bank shocked markets by exiting a three-year-old euro cap on Jan. 15. Economy Minister Morten Oestergaard a day later sought to silence doubts surrounding Denmark’s currency peg, which he said remains “secure.”

More from Bloomberg.com: Swiss Franc Wiped Out Everest’s Main Fund

Carl Hammer, chief currency strategist at SEB in Stockholm, says he’s been trying to make clear to callers that it’s “highly unlikely” Denmark will alter its exchange-rate regime.

Speculation Denmark will follow the SNB has forced bankers across Scandinavia to provide offshore investors with a crash course in Danish monetary policy. Hedge funds calling SEB, Danske Bank A/S and other Nordic banks have been urged to consider that Denmark’s peg has existed for more than three decades and is backed by the European Central Bank, unlike the SNB’s former system.

More from Bloomberg.com: Obama Proposes New Tax Increases on Wealthy to Help Middle Class

“Obviously, we think it’s completely unrealistic” that Denmark will abandon its peg, Jan Stoerup Nielsen, an economist at Nordea Markets in Copenhagen, said by phone. “But that doesn’t seem to be stopping the speculation.”

More Ammunition

The day the SNB jettisoned a cap that had prevented the franc strengthening beyond 1.20 to the euro — a system that was presented as temporary back in 2011 — the Swiss currency’s value surged by about 20 percent. Denmark’s krone, which is tied to the euro in a 2.25 percent band around a target of 7.46038, appreciated to its strongest level since June 2012, based on closing prices. It was at 7.4310 at 12:15 p.m. today in Tokyo.

More from Bloomberg.com: Kaisa on Brink of Dollar Default Spooks Money Managers

Denmark cut its benchmark deposit rate to minus 0.05 percent in September, compared with a low of minus 0.2 percent at the height of Europe’s debt crisis in July 2012. The nation’s currency reserves are about 13 percent below their peak of 514.4 billion kroner ($ 80 billion) set 2 1/2 years ago. Central-bank GovernorLars Rohde said last month “there’s still some way to go” before Denmark tests the limit of its monetary tool box.

More Cuts?

“There’s no point in speculating that the currency peg will fall,” Arne Lohmann Rasmussen, head of fixed-income research at Danske in Copenhagen, said by phone. Denmark’s biggest bank has also received calls from hedge funds seeking to profit from Danish interest-rate bets following the SNB’s decision, he said. He’s advising them to prepare for cuts.

Danske and Nordea both predict the central bank will lower borrowing costs on Jan. 22, after the ECB unveils the details of its bond-purchase program. Danske sees more easing after that, with the deposit rate dropping as low as minus 0.25 percent.

Karsten Biltoft, a spokesman at the Danish central bank, declined to comment. The bank doesn’t hold scheduled meetings and only adjusts reserves and rates to defend its euro peg.

“There are always rumors in the market that have nothing to do with reality,” Klaus Rasmussen, chief economist at the Confederation of Danish Industry, said by phone. However, dropping the euro peg “would be totally silly,” he said.

To contact the reporters on this story: Peter Levring in Copenhagen at [email protected]; Love Liman in Stockholm at [email protected]

To contact the editors responsible for this story: Tasneem Hanfi Brogger at [email protected] Jonas Bergman

More from Bloomberg.com

  • Ukraine Forces Retake Most of Donetsk Airport, Official Says
  • Yen Advances as China Stocks Rout Spurs Haven Bid; Franc Slides
  • Oscar-Nominated ‘American Sniper’ Wins Top Box Office Position