Swiss Franc Posts Annual Decline Against Euro


The Swiss franc fell against the euro for a third year as gains in global stocks encouraged traders to borrow the currency to fund higher-yielding investments.

The franc weakened versus the euro, along with the Japanese yen, as investors took advantage of the currencies' low interest rates to fund so-called carry trades. Global stocks advanced in 2007, stoking appetite for more speculative investments, even as the U.S. subprime-mortgage market collapsed mid-year.

Against the euro, the franc dropped 2.9 percent this year, its third successive annual decline and following a 3.4 percent slide in 2006. It traded at 1.6562 by 3:15 p.m. in Zurich, near the highest in a week and up from 1.6583 Dec. 28. Japan's yen fell for an eighth year versus the euro in 2007, declining 4.8 percent to 164.58.

Switzerland's currency this year declined the most against the Brazilian real, whose 11.25 percent main lending rate makes it a popular purchase for carry-trade investors. Switzerland's benchmark is 2.75 percent, the second-lowest among industrialized economies after Japan's 0.5 percent rate.

Investors borrow the franc or yen cheaply and convert the proceeds into a currency, such as the real or British pound, 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.


TradingEconomics.com, Bloomberg
12/31/2007 7:51:31 AM