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Swiss franc falls on signs inflation slowing, on carry trades

The Swiss franc fell against the euro on signs inflation in Europe's eighth-biggest economy is easing, and as investors take advantage of the so-called carry trade.

The franc traded near its lowest since May 1999 after a report showed producer and import price inflation slowed. Carry-trades involve borrowing in a currency with relatively low interest rates to invest in higher yielding assets. The Swiss central bank, which has the lowest rate outside of Japan, charges 1.5 percentage points less to borrow money for three months than the European Central Bank. „The yield differential is playing against the franc,” said Henrik Gullberg, currency strategist at Calyon in London. „While the ECB is quite hawkish in their rhetoric, the Swiss central bank is relatively quiet.

The price data only adds to the view we're pretty close to the peak in Swiss rates.” Against the euro, the franc traded at 1.6192 per euro at 10:54 a.m. in Zurich, from 1.6174 on January 19. It slid to 1.6198 on January 18, its lowest since it touched 1.6210 in May, 1999. It was also at 1.2478 versus the dollar, from 1.2475. Prices for Swiss factory and farm goods as well as imports rose 2.6% in the year, down from 2.8% in November, the statistics office said. Economists forecast a 2.7% gain, according to the median of eight forecasts in a Bloomberg News survey. (Bloomberg)