Weak dollar won’t mean cheaper goods

Keystone Archive

As the surging Swiss franc flirts with parity against the dollar for the first time in history, consumers have begun asking what the payoff will be.

But the weak dollar – also hitting record lows against the euro and yen – is unlikely to translate into lower prices for imported goods, according to one of the country’s major business associations.

The dollar has lost SFr0.14 against the franc since the beginning of the year, trading on Tuesday at around SFr0.98.

The Swiss Business Federation (economiesuisse) says retail prices for consumer goods are influenced primarily by domestic considerations including labour and real estate.

“Input prices are not that high,” the organisation’s chief economist, Rudolf Minsch, told swissinfo.

“The shop prices depend on salaries, the location and so on,” he said. He added that the price of a pair of jeans, for example, would be less likely to change than the price of something like an automobile.

In the midst of troubled financial markets, jittery from the sub-prime crisis in the US, more foreign investors have taken refuge in the relative safety of the Swiss franc, driving up the value of the national currency.

Rate cut

The continuing fall of the US currency is the result of the country’s financial crisis and fears of a recession. An announcement on a cut in the US interest rate is expected later on Tuesday.

The symbolic and widely reported breaking of the dollar barrier alone will have a marginal impact on the way that Swiss firms operate, according to Minsch. He says exchange rates “are important, but not the dominant factor”.

Rates do affect profit margins, but economiesuisse believes that firms in Switzerland are more concerned about the global trends behind the drop in the dollar.

The weakened state of the US economy – reflected in large part by its relatively lower currency – translates into fewer Swiss exports to the US, he explained.

He added that while the machine industry was particularly vulnerable, all exports could be harmed if the franc continues to rise.

Safe haven

The market has perceived Switzerland to be a safe haven in times of trouble.

economiesuisse is not yet calling on the Swiss National Bank to lower interest rates – a move that would rein in the franc.

Minsch told swissinfo that should the dollar sink to around SFr0.90, exporters could expect “serious problems” but added that there was no definite threshold for capital flight – the phenomenon of money moving to a safe country – to be harmful.

But London-based foreign exchange analyst Peter Frank, who correctly predicted the rise in the Swiss currency, said the franc might rise further.

“It’s got the safe haven bid in times of financial distress. I see a fairly significant appreciation coming,” he said.

swissinfo, Justin Häne

Moving money

Over the past year, the dollar has dropped almost 20 per cent against the Swiss franc. At its highest point, it was trading at almost SFr1.25.

Over the same period, the euro has risen by around 16 per cent. Five years ago, it sat just above the dollar.

Recently, investors have sought refuge in safer European currencies, although the British pound is perceived to be in a weaker position than the euro or the franc.

Like the dollar, the British currency has been hit by an overexposure to underperforming mortgage-backed securities.

In September 2007, and in a foreshadowing of last week’s Bear Stearns fiasco, the British government was forced to bail out Northern Rock. It had run out of liquidity after panicked account holders made a run on the bank.