By Brian Blackstone and Patricia Minczeski 

ZURICH -- The euro briefly exceeded 1.20 Swiss francs Thursday and again early Friday, a level it hasn't reached in over three years, marking a milestone for Switzerland's economy that was battered, but not broken, by its strong currency.

Switzerland's ability to survive, and even thrive, is a counterpoint to recent comments by policy makers around the world who seemed to signal a preference for weaker currencies to juice exports or inflation.

It is a contradiction that has bedeviled the Alpine economy for years. The Swiss economy was considered stable and safe by global investors, driving up the franc's value, which in turn put the foundation of its export-led growth at risk.

The Swiss lesson, analysts said, is that nimble labor markets, productivity and an emphasis on high-value exports that aren't super sensitive to prices are just as important to a country's competitiveness as the exchange rate. A strong currency raises purchasing power for households and businesses.

"In 2015, when [the Swiss National Bank] gave up the euro-franc floor and you had this sharp appreciation, people thought the economy would cave in but it didn't. It looks like the Swiss economy was resilient to the strong franc," said Stefan Gerlach, chief economist at EFG Bank and former deputy governor of Ireland's central bank.

How we got here: During the financial crisis and eurozone downturns, the Swiss franc strengthened, buoyed by its haven status

The Swiss National Bank imposed a floor of 1.2 francs a euro, and bought assets in other currencies to boost them against the franc

On Jan. 15, 2015, the SNB stunned global financial markets by abandoning the euro-franc floor.

The euro fetched 1.2008 francs early Friday, up 12% in the last year. Analysts attributed the move, in part, to reduced political uncertainty in Europe and greater investor confidence in the global economy, easing demand for the haven franc.

The franc is by no means weak, and it is still considerably stronger than the 1.40 to 1.50 rate to the euro before Europe's debt crisis began in 2010. The Swiss currency is up 3% against the U.S. dollar in the past year.

Exchange rates have been front and center for finance officials this year. U.S. Treasury Secretary Steven Mnuchin caused a stir three months ago with comments that investors interpreted as signaling a preference for a weaker dollar.

"A weaker dollar is good for trade. In the longer term, a stronger dollar is a reflection of the strength of the U.S. economy," he said at the World Economic Forum in Davos, a departure from the unwritten code among policy makers not to comment too directly on currencies.

Since then, President Donald Trump has chastised China and Russia for their currency policies. "Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates," he wrote on Twitter Monday. "Not acceptable!"

The Swiss, for their part, have tried to devalue the franc on and off for several years. In September 2011, the SNB said that it wouldn't allow the euro-franc rate to fall below 1.20 and that it would intervene in currency markets if needed to enforce that floor. They held the line for more than three years.

But by early 2015 the peg became too costly to maintain and exposed the Swiss central bank to financial risks given the vast sums of foreign stocks and bonds it accumulated through years of currency intervention.

Without warning, the SNB abandoned the euro-franc floor on Jan. 15, 2015. That sent the franc soaring as much as 30% against the euro in a single day even though the SNB also cut its deposit rate to minus 0.75%. In the blink of an eye, one euro went from buying 1.2 francs to buying less than one franc.

That made Swiss products from watches to machine tools and ski vacations a lot more expensive in other countries. And it made foreign goods cheap, pushing consumer prices into negative territory. The worry was that this combination -- coupled with negative interest rates -- would plunge the wealthy but export-dependent economy into recession.

Abandoning the peg hit tourism...

...and exports sensitive to exchange rates.

But some of Switzerland's major exports aren't sensitive to exchange rates

While sectors like tourism suffered, the overall economy avoided recession and, in recent months, has been growing at around a 2% annual rate. The unemployment rate is below 3%. After years of deflation, annual inflation is positive, but low, at 0.8%. The trade surplus was 35 billion francs ($36.2 billion) last year, roughly 5% of Swiss GDP, led by its large surplus with the U.S.

After a dip, the Swiss economy recovered...

...and prices are rising, albeit at a modest pace.

"If you're Switzerland and you have fine-tuned manufacturing that's hard to replicate, you can survive currency fluctuations," said Peter Rosenstreich, head of market strategy at Swissquote Bank.

Still, protecting the Swiss economy has been costly, with foreign reserves rising in both euro and dollar terms

There is another plus: a supercharged franc made the already rich Swiss even richer. Wealth per adult rose 130% to $537,600 from 2000 through mid-2017, according to a report from Credit Suisse last year, and Switzerland "continues to lead the global rankings."

"We note that a large part of the rise is associated with the appreciation of the Swiss franc against the U.S. dollar between 2001 and 2013," the report said.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

April 20, 2018 05:44 ET (09:44 GMT)

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