Obviously, markets are responding in a short-term  BIS Review 40/2007  1  manner, as a function of current interest differentials or of expected changes in these differentials, without fully recognising the existing economic fundamentals or fearing the possibility of sudden adjustments in exchange rates. Inevitably, this speculative attitude is risky. History has shown us that reversals on foreign exchange markets often take people by surprise, that periods of strength in the Swiss franc may alternate with periods of weakness, and that the Swiss franc has a tendency to react excessively in times of uncertainty. Therefore, caution is called for. Our exporters need to retain control of their exchange risks even at times of low volatility. After all, nobody would think of doing without fire insurance just because their house had been spared for a number of years. Domestic demand on the right path Inevitably, the strong momentum of foreign trade has spilled over into investment and domestic consumption, and especially into employment. Initially, an improvement in equipment investment and employment results from an increasing level of capacity utilisation. Thus, in manufacturing, the rate of capacity utilisation has been rising steadily since 2002 and has now reached a historical high. The corporate sector, which in 2005 was still hesitant about the soundness of the recovery, held a more favourable view last year. As a result, companies considerably stepped up their investment plans for equipment. At the same time, they created jobs – in particular full-time positions – at a faster rate.
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