Swiss Franc Falls as Rally in Global Stocks Stokes Carry Trade


The Swiss franc fell against the dollar and the euro after a rebound in global stocks encouraged investors to resume so-called carry trades funded with loans from Switzerland and Japan.

The franc fell against all 16 most-traded currencies except the yen as investors borrowed in low interest-rate countries to buy higher-yielding assets elsewhere, earning the spread between the two. The franc also fell as the risk of companies defaulting on their debt declined on speculation the Federal Reserve will cut rates by at least 50 basis points tomorrow.

Against the euro, the franc fell to 1.6153 by 5:15 p.m. in Zurich, the lowest level in more than a week, from 1.6101 yesterday. It dropped to 1.0938 per dollar, from 1.0893. The yen slipped versus eight of the 16 major currencies.

The franc was also weakened after a government report showed Swiss exports declined in December. Sales abroad, adjusted for inflation and seasonal swings, slipped 2.9 percent from November, according to the Federal Customs Office in Bern today. The trade surplus fell to 198 million francs ($182 million), the lowest since August 2005.

At 2.75 percent, Switzerland's key interest rate is the lowest among industrialized economies behind Japan's 0.5 percent main rate, encouraging investors to borrow them for carry trades, the profits of which can be wiped out by currency market volatility. Australia's main lending rate is 6.75 percent and Brazil's is 11.25 percent.

Swiss government bonds fell, with the yield on the 3.25 percent note due February 2009 rising 2 basis points to 2.39 percent. Yields move inversely to bond prices.


TradingEconomics.com, Bloomberg
1/29/2008 6:56:56 PM