The Swiss franc turned weak yesterday amid an increase in risk appetite in the Forex market. Currency strategists believe that traders were willing to take the risk because of expectations for a China-US trade deal in the weeks ahead. The perceived stabilization in the Chinese economy and a solid start to the US earnings season encouraged investors to shy away from the franc, a safe-haven currency, and look for better investment opportunities elsewhere.
Even the positive domestic macroeconomic data did not enable the franc to hold its turf. In the past 24 hours, the USD/CHF currency pair has gained from 1.0010 to 1.0046.
The Federal Statistical Office announced that the Producer Price Index increased 0.3% m-o-m in March, beating analysts’ expectations for a 0.2% increase. In February, the PPI rose by 0.2%. The report stated that “higher prices for petroleum products” led to the rise in PPI. Analysts had expected the same 0.2% rate of increase as in February.
In the recent Swiss economic outlook report, the UBS Chief Economist, Daniel Kalt, has provided some vital information regarding the Swiss National Bank’s (SNB) rate hike forecast and the Swiss franc. Kalk anticipates the first SNB rate hike only at the beginning of next year, in tandem with that of ECB. He has also opined that the franc is still overvalued. According to Kalt, if the franc strengthens further, it could harm the Swiss economy.
On Saturday, the Swiss National Bank Chairman Thomas Jordan stated that there is no need for any change in the monetary policy for the time being, but there is room to take the interest rate deeper in the negative territory, if necessary.
Regarding interest rates, Jordan said: “We always stress the point that we have still room to lower interest rates further and we have also room to use the balance sheet, if necessary, for interventions in foreign exchange markets. Both instruments are here to use depending on the situation.”
Earlier this month, the IMF predicted that Switzerland’s economic growth is anticipated to decline to 1.1% this year before recovering moderately in 2020. The Swiss National Bank (SNB) continues to follow an ultra-loose monetary policy, with benchmark rates currently at -0.75%. So, the central bank would charge a particular amount for holding beyond a threshold level. The SNB uses it as a tool to fight the rise of the Swiss franc and avoid price volatility to a large extent.
The SNB continues to intervene in the Forex market to prevent the franc, which hit its almost two-year high level against the euro recently, increasing the headwinds for the export-oriented economy. The Swiss franc has lost some of its ground recently. However, Jordan believes that the franc is “still highly valued.”
The Chinese trade data published on Friday indicated that exports increased sharply and new bank loans grew more than anticipated in March.
Even though goods imports declined, the economic data as a whole made investors believe that the Chinese economy is bottoming out following a range of monetary stimulus announced recently. Last week’s US stock market rally based on robust first-quarter earnings from JP Morgan and Walt Disney’s 11.5% rise on news related to streaming services has turned the sentiment bullish.
The S&P 500 index hit its six-month peak and close to the ever high recorded in September 2018. The overall positive mood has brought back risk on sentiment in the market. A US-China trade deal is anticipated to ease investors’ concerns further and weaken the Swiss franc.
The facts presented above indicate that the USD/CHF pair will remain bullish in the short-term.
Technically, the currency pair is moving within an ascending channel as shown in the image below. The oscillator of the moving average is also in the positive region. As a result, we can expect the USD/CHF pair to remain bullish in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
