Swiss Franc Rises to Record Against Dollar


The Swiss franc rose to a record against the dollar as speculation financial-sector losses will swell crimped demand for high yielding assets, prompting investors to reduce so-called carry trades.

The franc also climbed to a five-month high versus the euro as the risk of European companies defaulting on their debt held near the highest since at least September. Declines in global equity markets encouraged investors to sell higher-yielding assets funded with cheap loans from Switzerland, buoying the country's currency.

The Swiss currency rose to 1.0864 per dollar as of 3:18 p.m. in Zurich, from 1.0930 yesterday. Against the euro, the franc climbed to 1.6197, the strongest since Aug. 17, from 1.6253 on Jan. 14.

One-month implied volatility for the franc against the dollar rose to a seven-week high, implying increased exchange- rate fluctuation risk, which reduces the money that can be made from carry trades.

Carry-trade investors convert the proceeds of low-interest loans in francs or Japanese yen into currencies they can lend out for a higher return. They earn the spread between the rates at which they borrow and lend out money, taking the risk currency moves will wipe out this profit.

Japan's main rate is 0.5 percent and Switzerland's is 2.75 percent. Turkey's benchmark rate is 15.75 percent, Brazil's is 11.25 percent and South Africa's is 11 percent.

Swiss government bonds advanced, with the yield on the 3 percent note due January 2018 falling 4 basis points to 2.86 percent. Yields move inversely to bond prices.


TradingEconomics.com, Bloomberg
1/15/2008 6:51:54 AM