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FOREX-Swiss franc drops as traders say BIS bought euros

Published 06/18/2009, 09:49 AM
Updated 06/18/2009, 09:56 AM
EUR/CHF
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* Euro/Swiss franc rises on talk of intervention

* BIS, SNB decline comment on the rise EUR/CHF

* Traders say long EUR/CHF running out of steam

* SNB holds interest rates at record low (Recasts, updates prices, adds comment, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 18 (Reuters) - The euro jumped against the Swiss franc on Thursday amid speculation the Bank for International Settlements was acting on behalf of the Swiss National Bank to defend the 1.50 level.

Several traders in the United States and London said they saw bids from the BIS in the currency market for the euro and offers to sell the Swiss franc. The BIS and SNB both declined to comment though.

The euro jumped to 1.5126 francs on electronic trading platform EBS from 1.5008. It was last at 1.5119 francs.

"It looks like the BIS have been in ... it's probably fair to say it's SNB-related," a London-based trader said.

Another trader said he saw a bid from a big Swiss bank at 1.5035 and was also aware of a BIS bid on the euro.

The Swiss franc's move came after the SNB held interest rates at a record low on Thursday, keeping its target rate for three-month Swiss franc LIBOR at 0.00-0.75 percent with an aim to lower it to 0.25 percent.

SNB Governor Jean-Pierre Roth said he would continue to stop an irrational rise in the Swiss franc, but analysts said he did not confirm the SNB had acted beyond initial intervention after its last policy meeting on March 12 when the euro jumped to nearly 1.5350 francs from around 1.4750 francs.

Analysts said some traders were testing the resolve of the SNB on intervention, and the market was figuring out how low the euro/Swiss franc pair had to fall before the central bank would enter the market.

Another analyst at a U.S. currency firm said he noted a distinct change in tone from the SNB's press conference on Thursday. "I think the 'easy trade' of buying EUR/CHF on the 1.50 handle has now run its course."

While this analyst would not suggest selling EUR/CHF, he strongly suggests exiting longs on the currency strength or at least tightening stops significantly.

Markets were constantly on the alert for SNB action after the bank in March stunned the global foreign exchange market and bought euros and dollars versus the Swiss franc. Before that, the SNB had last physically intervened in August 1995.

The Swiss National Bank became the first central bank in the industrialized world to sell its currency as part of its fight against deflation.

The bank's selling of the Swiss franc is part of a series of measures to avert deflation now that its rates have hit rock bottom.

(Additional reporting by Nick Olivari, Steven C. Johnson in New York, and Naomi Tajitsu, Tamawa Desai, and Jessica Mortimer in London; Editing by Kenneth Barry)

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