Swiss Franc Gains Most Ever Against Euro, Threatening Exports

By Joshua Gallu

Oct. 24 (Bloomberg) -- The Swiss franc rose the most against the euro since the common European currency's debut in 1999 as the economic outlook for the 15-nation area worsened.

The franc gained as much as 3.4 percent after euro-area manufacturing and services shrank at a record pace and the U.K. economy contracted in the third quarter.

``The franc is going through the roof against the euro,'' said Janwillem Acket, Zurich-based chief economist at Bank Julius Baer, Switzerland's biggest independent wealth manager. ``This is certainly bad news for Swiss exporters to the euro area.''

The franc's 14 percent gain against the euro this year is eroding the value of Swiss exporters' sales in the single currency region, just as economies including Germany and France slide toward recession. The European Union accounts for more than half of Swiss products sold abroad.

Switzerland's leading economic indicators dropped to the lowest in five years last month and a measure of manufacturing growth signaled contraction for the first time in more than three years. Swiss exports declined for the first time in almost four years in September as slowing growth damped orders.

The franc gained 2.9 percent to 1.4553 per euro by 12:10 p.m. in Zurich, the strongest since March 5, 2003. Against the dollar, it was little changed at 1.1597.

``If we go the 1.45 level'' against the euro, ``we'll have the setting for a rate cut,'' Acket said. ``The SNB may even cut rates as early as December.''

The Swiss National Bank joined global central banks in cutting rates Oct. 8 as credit markets froze, lowering its benchmark to 2.5 percent from 2.75 percent. SNB President Jean- Pierre Roth told Aargauer Zeitung last week that he may lower interest rates further if the economy worsens.

To contact the reporter on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net