Bloomberg – The Swiss franc has become the new favorite for speculators seeking cheap money to finance higher- yielding bets.
The franc dropped to a two-year low against the currencies of Switzerland’s biggest trading partners, according to an index prepared by the Bank of England. It has fallen against 13 of the 16 most-traded currencies since July.
Switzerland’s central bank charges 1.75 percent interest to borrow for three months, the lowest rate outside of Japan. That has attracted speculators, who borrow the franc and sell the currency to invest in Iceland, New Zealand and Turkey, where rates are as much as 15.75 percentage points higher.
“The Swiss franc has really been eroded and it’s down to interest rates,” said Mark O’Sullivan, who helps oversee $2 billion of foreign exchange at Currencies Direct Ltd., an investment-management company based in London. His favorite trade is selling the franc and buying debt in New Zealand, where the central bank’s benchmark rate is 5.5 percentage points higher.
Switzerland’s currency lost 1.8 percent against the dollar in the past three months to 1.2592. The franc extended its decline after Swiss National Bank President Jean-Pierre Roth on Oct. 10 said the economy will grow 1.8 percent in 2007, down from about 3 percent this year. The cut gave traders confidence that interest rates won’t rise.
