Swiss Franc Rises Against Euro, Dollar on Growth

The Swiss franc rose against the euro and the dollar on speculation widening losses by U.S. banks will erode confidence in the financial system, trimming demand for higher-yielding assets funded in Switzerland.

The franc traded near the highest level in three months against the dollar as a government report showed retail sales rose more than economists expected in May, making it less likely the Swiss National Bank will cut interest rates. Federal Reserve Chairman Ben S. Bernanke yesterday abandoned his view that economic risks had diminished, helping to push the Standard & Poor's 500 Index to the lowest since 2005.

Against the euro, the franc rose as much as 0.2 percent to 1.6028, its highest level since July 1, and was at 1.6043 as of 10:38 a.m. in Zurich, from 1.6060 yesterday. It was at 1.0073 per dollar, from 1.0092 yesterday, when it traded as high as 1.0012, the highest level since April 22.

Swiss sales per day, adjusted for inflation, increased 7.4 percent from a year earlier after dropping 9.4 percent the previous month, the Federal Statistics Office in Neuchatel said today. Economists expected sales to gain 3.8 percent in May, according to the median of five estimates in a Bloomberg survey.

SNB Governing Board member Thomas Jordan said policy makers will raise borrowing costs if they see the risk of a wage-price spiral developing, NZZ am Sonntag reported July 6, citing an interview.

Futures trading shows investors reduced bets on higher interest rates by the European Central bank this year, with the implied yield on the December Euribor futures contract declining 23 basis points since June 30 to 5.03 percent today.

Falling stock markets encouraged investors to reduce carry trades, in which investors borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. The Swiss Market Index dropped 0.4 percent, while the Dow Jones Euro Stoxx 600 Index, a European benchmark, held near the lowest level since May 2005.

Switzerland's main interest rate, at 2.75 percent, is the third-lowest among industrial countries after Japan and the U.S.

Swiss Franc Rises Against Euro, Dollar on Growth, Bloomberg
7/16/2008 6:46:32 AM