FOREX-Swiss franc falls as cbank intervention talk outweighs virus worries

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee
LONDON, Jan 22 (Reuters) - The Swiss franc fell on Wednesday
on signs the central bank may be intervening to stop it rising
further, outweighing the impact of concerns about the spread of
a new coronavirus that have driven investors into safe-haven
assets this week.
The franc dropped against both the dollar and euro, falling
as much as 0.5% against the single currency.
The move was "relatively strange given there is very little
going on in the broader markets and likely signals the Swiss
central bank's discomfort with the currency at current levels,"
said Thu Lan Nguyen, a FX strategist at Commerzbank based in
Frankfurt.
Against the euro EURCHF=EBS , the franc fell to 1.0787
francs per euro before trimming some gains to around 1.0767
francs. It hit a more than 2-1/2-year low of 1.0729 last week.
Against the dollar CHF=EBS , it was down 0.2% at $0.97055.
Broader currency markets were trapped in tiny ranges, with
concerns that the coronavirus outbreak in China could trigger a
pandemic leading to some demand for safe-haven assets.
The Swiss National Bank has had an interventionist approach
to the franc as it struggles to boost inflation in the highly
export-oriented economy.
It declines to talk about its currency management policy,
but investors use weekly sight deposit data as a proxy to
estimate how active it has been in the currency markets.
Data published on Monday showed an increase in the amount of
cash that domestic commercial banks hold with the Swiss National
Bank. Though there was no immediate market trigger for the central
bank to intervene around these levels, traders said a drop in
general market volatility may have encouraged authorities to
step in as it usually creates an outsized impact on the market.
Daily volatility in the euro-dollar exchange rate, for
example, has cratered to below 3%, more than halving from around
7% in September and not far from a record low of below 2% in
April 2014.
Meanwhile, the euro remained pinned at a one-month low amid
expectations European Central Bank would strike a cautious tone
at its meeting on Thursday.
A survey by Germany's ZEW research institute on Monday
showed investors' mood improved more than expected in January
and the signing of a Phase 1 China-U.S. trade pact raised hopes
Europe's economy would recover. A Citigroup index of euro zone
economic activity .CESIEUR rose to its highest since February
2018.
But improvement in the business surveys is not yet evident
in actual economic activity, which remained weak at the end of
2019.
"The ECB is likely to acknowledge that downside risks have
eased, but there is no need to signal that it plans to deviate
from their looser-for-longer policy message at the current
juncture," MUFG strategists said in a note.
Against the dollar, the euro was weaker at $1.1077
EUR=EBS , its lowest since Dec. 25. It has weakened more than
1% so far this month.
The single currency may also see some turbulence should the
far-right League win the weekend election in Italy's Emilia
Romagna region, potentially threatening the fragile coalition
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Swiss interventions rise, weaken franc https://tmsnrt.rs/2Gf9naM
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