As the impact of the Cypriot bank deposit levy reverberates through the market, safe-haven currencies like the Swiss Franc climb on their peers as investors turn-away from higher-yielding assets.
The Swiss Franc exchange rate was in the region of 0.8186 against the Euro as of 10:22 am GMT
The Swiss Franc advanced on the Euro as an extraordinary development regarding a nationwide tax on Cypriot bank deposits sent shockwaves through the market, triggering some violent exchange-rate movement.
After news broke that the President of Cyprus, Nicos Anastasiades, will attempt to convince lawmakers to support a scheme which would imposes losses on Cypriot depositors the Euro broadly weakened, allowing the Franc to advance by 0.96 per cent. The currency also climbed 0.6 per cent on the US Dollar.
This unprecedented plan forms part of an essential bailout for Cyprus. Without it the island nation risks financial ruin and potential expulsion from the 17-nation currency bloc. However, industry experts are fearful that it will set a dangerous precedent which could cause more damage to the economic recovery of the still-fragile Eurozone.
As foreign exchange strategist Steven Englander remarks: ‘The issue is whether to believe that the Cyprus levy on depositors is a one-off. The risk-return to depositors in countries with weak banking systems may not favour taking the risk that the Cypriot banking system was so unique that such a levy would never be considered elsewhere.’
Although a later downward correction took the Franc’s gains to 0.6 per cent the Swiss currency could continue to benefit from the new wave of Eurozone turmoil.
Comments are closed.