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Dollar tumbles to seven-year low against franc

The weak dollar could have a negative impact on the Swiss export industry

(Keystone)

The dollar has plummeted to its lowest level in seven years against the Swiss franc, fuelling fears that Switzerland's already weak export sector will take a tumble.

Experts say the prices of Swiss goods on the global market are likely to drop in the near future as a direct result.

The United States currency has also lost nearly 40 per cent of its value against the euro in the past two years.

A prolonged fall in the value of the dollar could hit Swiss industry hard at a time when orders in the machinery sector - the country's biggest exporter - are picking up. In the first quarter orders were up 8.4 per cent compared with a year ago.

The dollar inched lower against the franc on Wednesday to SFr1.286 following hints at the weekend by the US Treasury Secretary, John Snow, that Washington had abandoned its "strong" dollar policy.

His remarks, at a meeting of G-8 finance officials in France, suggested that Washington would not intervene to support its flagging currency.

Swiss exports to the US totalled SFr14 billion ($8.3 billion)in 2001, some ten per cent of total exports. After Germany, the US is the second most import export market for Swiss products.

Delayed reaction

Stefan Eitenmüller, head of forecasting at independent think-tank Basel Economics, says Swiss exporters could feel the pinch by late this year.

"If [the dollar] continues or goes lower we would certainly see effects in export performance later in 2003 and 2004," he told swissinfo.

The reason for the delay is that exporters usually hedge their currency exposure, so they would not be visibly affected in the short-term.

Eitenmüller says a weak dollar will hammer exporters' margins - rather than the actual level of exports - because the price fetched for Swiss goods will be reduced.

"It's the opposite of the direction we've seen in the past. Then the increase in the dollar boosted the profit margins of the exporters. Now it's the downside of the same coin," he said.

Worst over?

Some experts are predicating that the dollar will become even weaker. US bank JP Morgan is forecasting an exchange rate of SFr1.23 for May 2004.

But the Zurich Cantonal Bank believes the worst is over.

"We think that the [dollar's] low point has already been reached in the US. Aside from that, the dollar's weakness is related to the way the European Central Bank [ECB] sets interest rates," said Claude Zehnder, a bank analyst.

Zehnder is convinced that the ECB is set to lower interest rates, which would affect dollar-franc exchange rates.

But Eitenmüller said a cut in interest rates by the Swiss National Bank - in an effort to drive down the value of the franc - was unlikely because rates are already very low.

"A decline in interest rates would not have a substantial effect, if the markets believe the dollar should be lower," he added.

Euro

However, Swiss firms are far more interested in the fortunes of the European Union, which absorbs 60 per cent of the country's exports.

Eitenmüller says they hope a low dollar will boost business, or at least margins, in trade with the EU.

Like the franc, the euro has rocketed in value against the dollar, reaching $1.172 early on Wednesday - just short of its record high on January 4, 1999, four days after its introduction.

"Switzerland exports a higher share into the euro area than in dollar-denominated terms," said Eitenmüller.

"As long as the increase in the euro against the dollar is stronger than the appreciation of the franc, this would [help to] offset the decline in the dollar," he said.

swissinfo, Elvira Wiegers (translated by Faryal Mirza)

Key facts

The US dollar has reached a seven-year low against the Swiss franc, slipping below SFr1.29 on Wednesday.
The euro also made a strong showing against the dollar on Wednesday, at $1.171.
More than 50 per cent of corporate earnings come from the export industry.
Ten per cent of Swiss exports go to the US.

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