February 5, 2019 / 4:02 PM / in 3 months

Swiss franc weakens to 12-week low as carry trades rise

ZURICH, Feb 5 (Reuters) - The Swiss franc weakened to its lowest level in 12 weeks on Tuesday as investors used the safe-haven currency to buy higher yielding currencies.

The euro bought 1.1444 francs on Tuesday - the single currency’s highest level against the Swissie since the start of November.

Analysts said the weakening followed recent caution from the U.S. Federal Reserve about raising its own interest rates which prompted investors to seek other places to put their money.

“Many investors, above all hedge funds are carrying out carry trades,” said Robin Winkler, a strategist at Deutsche Bank.

“They are borrowing cheap money and investing it in currencies with high interest rates like the Turkish lira, Russian rouble or in Latin America,” he said.

Many of these deals are being financed in Swiss francs or yen, Winkler said, which lead to these currencies being sold and triggering a decline in their values.

The Swiss National Bank, however, is unlikely to relax following the recent weakening in the franc which it has fought to tame over the last four years.

The central bank has repeatedly stressed this year it believes the franc to be highly valued, and would also continue with its policy of negative interest rates and foreign currency purchases if needed to prevent the franc rising higher.

Chairman Thomas Jordan has also stressed the fragility of the currency markets as well as risks like Brexit which could disturb the markets further.

Deutsche Bank’s Winkler said the franc’s current weakness could be short-lived, and its upward trajectory resume due to Switzerland’s big current account surplus and reluctance of Swiss companies to invest abroad.

“These phases come and go, and rarely last longer than a couple of weeks,” he said.

“When the risk awareness returns, then these carry trades will be wound up again and that means the money will flow back to Switzerland.” (Reporting by Angelika Gruber; Writing by John Revill; Editing by Mark Potter)

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