The Swiss franc remained pinned at sky-high levels Monday,
hovering around one-to-one against the euro after last week's shock
decision by the Swiss National Bank to allow its currency to
climb.
"Around parity the Swiss franc appears more overvalued versus
the euro than at any other time in the last 30 years, and the
strength of the Swiss franc is likely to put significant strain on
the Swiss economy," said Beat Siegenthaler, a currency strategist
at UBS, adding that he nonetheless assumes that the exchange rate
will "fluctuate around parity for the coming months."
Swiss stocks regained some stability Monday, with the main Swiss
SMI up 1.8%. Stocks took a beating on the announcement last week,
as investors feared that foreign buyers would shun expensive
exports.
Having last week been among the biggest losers, shares in Swiss
banks Julius Baer Gruppe AG and UBS Group AG were among the biggest
gainers on the pan-European all-sector index, as were shares in
Zurich Insurance Group AG, Swiss Re AG, Nestlé SA and Novartis
AG.
Head of the Swiss finance department Eveline Widmer-Schlumpf
told local press over the weekend that the country "can cope" with
the decision by the SNB to let the euro fall below its previous
limit of CHF1.20 against the franc.
Elsewhere Monday, expectations that the European Central Bank
later this week will announce plans to aggressively ramp up its
asset purchase program continued to shape markets.
Barclays economists wrote that expectations of the ECB embarking
on sovereign quantitative easing were now so high that "without
decisive actions, the ECB risks failing on its mandate to deliver
on the inflation target and financial stability."
"Deflation and market stress, in turn, would deteriorate fiscal
dynamics in the euro area and possibly precipitate default or
breakup scenarios," they added.
Yields on sovereign bonds issued by countries including Italy,
Spain and Portugal slumped to new all-time lows. The euro hovered
around $1.1570, taking its losses against the dollar so far in 2015
to almost 4.5%.
"Given what we know about the impact of QE programs on
currencies it seems reasonable to suppose that the start of this
week will see the euro come under significant pressure against a
wide range of currencies, " said Simon Derrick, chief market
strategist at BNY Mellon.
The Stoxx Europe 600 and London's FTSE 100 were broadly steady
on the day while Germany's DAX added 0.3% and France's CAC declined
0.2%.
Brent crude slumped 1.5% to around $49.45 a barrel while gold
edged 0.2% lower to $1,1275 a troy ounce.
Write to Josie Cox at josie.cox@wsj.com
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