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To: goldsnow who wrote (11476)	5/10/1998 12:15:00 PM
From: goldsnow	Read Replies (2) \| Respond to of 116833

Swiss franc's allure fades as EMU anxiety ebbs 10:10 a.m. May 08, 1998 Eastern By Pratima Desai LONDON, May 8 (Reuters) - The growing risk of higher interest rates in Germany and the United States coupled with receding market jitters over the launch of the euro will hit the Swiss franc in coming months, analysts said on Friday. Investors have used the Swiss franc as a safe-haven against European economic and monetary union (EMU) uncertainty but that support is being eroded now that European Union leaders have agreed to launch EMU with 11 members. Without this prop, analysts said, there is little reason to hold Swiss francs as Swiss interest rates, amongst the lowest in Europe, would yield a minimal return. ''The market is now expecting a smooth passage to EMU, and the Swiss franc will continue to weaken. It is unusual for the market to take such a long term view'' said Julian Jessop, chief European economist at Nikko Europe. But some analysts believed a resurgence in Swiss franc popularity was possible towards the end of this year as last minute jitters about EMU resurface. Switzerland's official discount rate is currently one percent, while the German repo rate is at 3.30 percent and U.S. interest rates are at 5.50 percent. Yield differentials are set to widen further now German growth is picking up. With the need for interest rate convergence among founder members of EMU, German interest rates might be raised later in the year, analysts said. To add to the Swiss franc's worries, labour market pressures in the U.S. also point to higher interest rates there although the full effect of the Asian turmoil has not been felt yet and might delay a rise. Despite the shenanigans over the presidency for the European Central Bank (ECB) analysts believe the euro could be strong and offer an attractive yield pick-up over the Swiss franc. The weekend meeting of EU heads of state confirmed Wim Duisenberg, current head of the European Monetary Institute as president of the ECB, but a compromise was reached by agreeing to appoint Jean-Claude Trichet governor of the Bank of France as his successor. ''The perception of a strong euro has eroded the Swiss franc's safe-haven status. But the weaker Swiss franc will be more to do with the dollar and the mark,'' said Chris Suetterlin, assistant treasurer at Bank Sarasin in Zurich. At 1215 GMT the Swiss franc was trading at 83.43/44 centimes per mark against 83.83 centimes seen last Friday when the Swiss franc dropped to nine-month lows versus the mark. Dollar/Swiss franc was last at 1.4784/94 versus 1.4690/00 late Thursday. Suetterlin said the Swiss franc could fall to 1.55 per dollar by end-1998 and to 85 centimes against the mark. Ulrika Witte, assistant vice president at Norddeutsche Landesbank in Duesseldorf, cited the weak Swiss economy as a reason not to hold Swiss assets. ''The economy is not doing well, the public deficit is rising and with low inflation there is no stimulus for growth,'' Witte said. Expectations that Swiss rates will remain low were reinforced by comments from Swiss National Bank board member Bruno Gehrig last week. Gehrig said he did not see a sharp rise in Swiss rates as long as Swiss inflation stayed low. Swiss consumer price inflation showed no growth in April from March, while the year-on-year increase was 0.5 percent. Switzerland's stock market is also likely to contribute to a weaker Swiss franc if capital is withdrawn for redistribution in Europe as safe-haven concerns abate. In April the SMI index fell by more than 10 percent to 7029.1, from an all-time record high at 7884.8. On Friday it was trading below 7600. ''It's (Swiss stock market) likely to fall much further as people switch into stocks in other European countries,'' a trader said. But analysts said they expect to see a resurgence in Swiss franc popularity towards the end of this year as last minute jitters about EMU resurface. There is also the possibility the financial and economic turmoil in Asia may escalate, which would see a flood of money back into Swiss assets, analysts said. ''We do see an appreciation in dollar and mark levels, but towards the end of the year the Swiss franc may stage a recovery of sorts,'' Witte said. ^REUTERS@