Swiss Franc Advances Against Euro


The Swiss franc rose against the euro on bets the central bank will have more scope to raise interest rates to fight inflation, while the ECB will probably lower its borrowing costs to spur growth.

The Swiss National Bank left its target rate at six-year high in March as it balanced the threat of inflation against a worsening economic outlook. ECB council member Guy Quaden said yesterday its monetary policy is ``appropriate,'' though it's ready to take any necessary action as economic growth slows.

``In the second half of the year, the worst will be behind us in credit markets and the focus will shift towards rate hikes again'' from the SNB, said Henrik Gullberg, a London-based currency strategist at Calyon, the investment-banking arm of Credit Agricole SA. ``That'll provide some support for the franc, which will strengthen. We're looking for the euro to weaken.''

The Swiss currency advanced as much as 0.3 percent to 1.6186 per euro, and was at 1.6204 by noon in Zurich. Against the dollar, it fell to 1.0483, from 1.0437.

The franc will climb to 1.5850 per euro by the end of this quarter and to 1.5750 by the end of the year, Gullberg forecast. That's less bullish than the average prediction for a rate of 1.58 and 1.55, respectively, in a Bloomberg survey.

The implied yield on the three-month Swiss franc interest- rate futures contract due September was unchanged today at 2.82 percent, from 2.71 percent a month ago.

The Zurich-based SNB left its target rate at 2.75 percent on March 13 as it tries to keep inflation below 2 percent. Policy makers predict annual price-growth will average 2 percent in 2008 before slowing to 1.4 percent in the next two years.

The ECB left its benchmark rate at a six-year high of 4 percent on May 8 and said inflation will remain ``high'' for some time, signaling it's in no rush to lower borrowing costs in the 15-nation euro region. The bank will cut its key rate by half a point to 3.50 percent by the end of the year, a Bloomberg News survey of 25 forecasters showed.


TradingEconomics.com, Bloomberg
5/13/2008 6:40:43 AM