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Tumbling dollar bodes ill for Swiss exporters

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


The dollar has tumbled to its lowest level in over four years against the Swiss franc, amid signs that Washington has abandoned its "strong" dollar policy.

The slumping US currency threatens to further damage Switzerland's already weak export sector, just as it is showing tentative signs of recovery.

The dollar remained below SFr1.30 on Tuesday, following comments at the weekend by US Treasury Secretary, John Snow.

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

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

Swiss exports to the US totalled SFr14 billion in 2001, some ten per cent of total exports.

Delayed reaction

Stefan Eitenmüller, head of forecasting at independent think-tank, Basel Economics, says a weak dollar would likely start to hit Swiss exporters 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 to 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 downturn side of the same coin," he said.

Interest rates

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.

He added that the sagging dollar had little to do with the value of the franc and was more down to the markets' reluctance to hold dollar assets, driving down the exchange rate.

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

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

Eitenmüller says the hope is that a low dollar might boost business, or at least margins, in trade with the EU.

The reason is because, like the Swiss franc, the euro has rocketed in value against the dollar, reaching $1.165 early on Tuesday - just under two cents 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 Swiss franc, this would [help to] offset the decline in the dollar," he said.

swissinfo, Isobel Johnson

Key facts

The dollar slipped below SFr1.30 for the first time in four-and-a-half years on Monday.
The Euro also made a strong showing against the dollar on Monday, increasing to $1.1716.
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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