The Swiss franc soared to a record against the euro and a 21-month high versus the dollar, as investors sought shelter after the US threatened to retaliate for terrorist attacks on New York and Washington last week.
"Foreign-exchange markets have one thing on their mind -- run for cover," and that's leading to a "massive demand for Swiss francs," said Jeremy Fand, head of global currency strategy at UBS Warburg in Stamford, Connecticut.
Switzerland's political neutrality draws investors there in times of international crisis, said Fand. Investors also flee to the franc because Switzerland's current account surplus -- SF53 billion (US$33.6 billion) or 13 percent of gross domestic product for last year -- ensures regular demand for the currency.
The franc climbed to SF1.4452 per euro, from SF1.4706 yesterday, and reached the strongest since the euro's January 1999 debut. Switzerland's currency reached as high as SF1.5670 per dollar, the strongest since January last year, from SF1.5855. It then gave back some ground, trading at SF1.5787 per dollar.
For the week, the franc and the yen, both currencies of economies with current-account surpluses, posted the biggest gains of major currencies against the dollar. The franc rose 2.6 percent against the dollar from last Friday, and the yen 0.5 percent.
The Swiss currency has strength-ened at least 2.9 percent against 16 major currencies since Sept. 10, the day before terrorists destroyed the World Trade Center and damaged the Pentagon, heightening expectations for a US recession.
Fueling concern among investors, President George W. Bush yesterday demanded that Afghanistan's Taliban regime turn over the administration's prime suspect in the attacks, Osama bin Laden.
As Bush spoke, US ships, planes and troops were moving toward staging areas in the Persian Gulf. The Taliban vowed a holy war against any invader.
Investors also favor the franc because the Swiss economy, Europe's seventh-largest, probably won't slow as much as those of neighboring countries, such as Italy and Germany, analysts say.
Switzerland has the region's lowest jobless rate, at 1.7 percent.
The euro fell to US$0.9144, from US$0.9277 yesterday, pulled down as investors dumped the common currency for francs.
As US stocks stabilized above their lowest levels of the day, the dollar recouped some of its losses against the Swiss franc and extended gains against the euro and the yen. The dollar last traded at SF1.5796. After falling as much as 3.75 percent in opening trading, the Dow Jones Industrial Average pared the loss to 1.7 percent, stemming sales of dollars.
The yen fell against the dollar on expectations Japan will continue to sell its currency, as it did three times this week, to prevent gains from hurting exports with the economy sinking into recession.
Policy-makers in Japan have few options besides weakening the currency to pull the world's second-biggest economy out of an 11-year slump. Interest rates are already near zero, and government spending is constrained by debt amounting to about 130 percent of gross domestic product.
Japanese officials "are not going to abandon this in the middle," said Greg Anderson, an economist at Fleet Global Markets in Boston. He expects "the Bank of Japan will prevail" and keep the yen from strengthening. Fleet is recommending that clients sell yen.
The Japanese currency fell as low as ?117.48 per US dollar from ?116.38 on Thursday, when it reached a seven-month high.
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