Traders Abandoning Dollar, Sterling Pound And Euro For Swiss Franc
With the US, UK and Eurozone drowning in massive and spiraling public and corporate debts, traders are abandoning their currencies in recent years. Conversely, the Swiss Franc benefited from Switzerland’s strong economic fundamentals as its reputation as a refuge was enhanced during the global economic crisis and now the Eurozone woes. The strengthening Swiss Franc is starting to take its toll on exporters.
Hit by the Eurozone’s debt crisis woes, the Euro sank to lows against the Swiss franc, with a Euro trading between 1.30 and 1.35 francs. A year ago, one Euro fetched more than 1.50 francs.
Economists said the trend is far from ending.
“It is possible that the Swiss Franc will gain further and that it could reach 1.32 (against the Euro) by the end of three months,” said Marcus Hettinger, who heads FOREX trade at Credit Suisse. He added that the Euro could even dip below the 1.30 Franc mark.
Analysts have also said the the Franc could strengthen to “levels never seen against the Euro and maybe also against the Dollar.”
Against this trend, Swiss companies that owe part of their competitiveness to a weak Franc now find themselves in a difficult position.
“One Franc in two is earned from exports,” said Jean-Philippe Kohl from Swissmem, the federation of machine tools industry, a sector that is particularly exposed to currency fluctuations.
“Only very few companies can resist the speed at which the Franc is appreciating. Certain companies are not making money anymore at 1.35, the margin is cut,” he pointed out.
Kohl noted that the economic crisis has already cost the sector 20,000 jobs but “now we worry that other jobs will be lost” due to the strength of the Franc.
The movement of the Franc against the Euro is particularly worrying as the Eurozone is Switzerland’s biggest trading partner.
Between January and May, Switzerland exported 47 billion Francs’ worth of goods to the EU from a total of 79 billion Francs in exports. Comparatively, only 15.3 billion Euros’ worth of goods were sold to Asia and 8.9 billion to North America.
The Swiss National Bank has tried to alleviate the woes of Swiss exporters by purchasing Euros in recent months in a bid to shore up the currency. However, it stopped its intervention in June as it noted that the risk of deflation had diminished.
The Swiss federation of unions USS called on the central bank to restart its intervention, pointing out that the strengthening Swiss Franc could “cause sustainable damages to the Swiss export economy” and threaten some 30,000 jobs.
“It would be necessary to live with a strong Franc,” said Minsch, noting that companies will need to find other export partners notably in Asia.
For consumers, however, the strong Franc is a bonanza. Supermarket giant Coop said it will cut its prices by 10 percent on 150 products as its import costs fall. Travel agency Kuoni noted that bookings have increased for all Eurozone destination countries, such as Spain, Italy and Greece, where Swiss consumers are capitalising on their strong buying power.
