Swiss Franc Falls


The Swiss franc fell to the lowest level in more than a month against the euro after stocks rallied on optimism the worst of the credit-market squeeze may be over, prompting investors to sell the currency to fund higher-yielding purchases.

The franc dropped the most versus the New Zealand dollar and South African rand, whose main lending rates are respectively 5.5 and 8.25 percentage points higher than Switzerland's. The Swiss Market Index rose 1 percent to a more than one-month high, rallying with stocks around the world and boosting appetite for higher-yielding investments, including so-called carry trades.

The franc fell to 1.5938 per euro by 4:10 p.m. in Zurich, from 1.5831 at the end of last week. It declined 1.8 percent to 1.2372 New Zealand dollars and slipped 1.6 percent to 7.7035 rand.

The MSCI World Index of stocks added 0.3 percent, extending its biggest weekly advance in a year, while the Dow Jones Stoxx 600 Index, a benchmark for Europe, climbed 0.8 percent. In the U.S., the Standard & Poor's 500 rose 0.5 percent.

The franc also weakened as Swiss National Bank President Jean-Pierre Roth said today he expects inflation, which quickened to a 15-year high last month, to slow. Price growth should ease following a ``stabilization'' in oil prices, Swiss magazine Le Nouvelliste cited Roth as saying in an interview.

Carry-trade investors borrow at the low interest rates available in Japan and Switzerland and convert the proceeds into a currency, such as the rand, they can lend out for a higher return. They earn the spread between the borrowing and lending rates, taking the risk currency moves will erase their profit.

Switzerland's 2.75 percent main lending rate is the industrialized world's third-lowest, behind 0.5 percent in Japan and 2.25 percent in the U.S.


TradingEconomics.com, Bloomberg
4/7/2008 8:35:14 AM