- The Swiss Franc gained slightly against the Greenback on Friday after US Producer Price Index data fell short of estimates.
- Overall PPI fell and core factory gate prices flatlined for three consecutive months.
- The data substantially increases the probabilities of interest rates falling in the US in the future.
The Swiss Franc (CHF) gained slightly on Friday against the US Dollar (USD) but weakened a quite a bit for the full week. The USD/CHF pair traded 0.02% lower on Friday but rose 0.26% for the week.
The release of factory gate inflation in the form of the US Producer Price Index (PPI) caused the Swiss Franc to strengthen against the Greenback earlier in the session, but that USD weakness did not last the full session. The data showed wholesale price gains in December were lower than economists had estimated. This increases the probability that interest rates in the US will fall earlier than had been expected. Since lower interest rates tend to attract less foreign capital inflows, the news is bearish for the US Dollar.
The USD/CHF pair formed a daily high at 0.8550 and a low at 0.8488. The CHF strengthened as well against the Pound Sterling and the Euro on Friday.
Daily digest market movers: Swiss Franc rises after factory gate prices fall for third consecutive month
- The Swiss Franc gains against the US Dollar after US PPI inflation data for the month of December shows overall wholesale prices falling for the third consecutive month. The data is likely to feed through into consumer prices, leading to lower overall inflation in the future.
- Overall PPI on a monthly basis declined for the third month in a row in December, dropping by 0.1% when a 0.1% rise had been forecast. The 0% initial reading for the previous month of November was revised down to a 0.1% fall.
- The Producer Price Index ex Food and Energy, which is seen as the more representative reading, rose by 1.8% in December compared to a year ago. This was lower than the 1.9% gain forecast and the 2.0% registered in November.
- On a monthly basis the PPI ex Food and Energy data showed prices flatlining for three consecutive months, something which the US Federal Reserve will probably take note of at its next meeting when it next comes to set interest rates. PPI stood unchanged in December compared to the previous month, which was lower than the 0.2% rise estimate, and the same as the flat reading in November.
- Overall PPI inflation on a yearly basis came out at 1.0% YoY, undercutting the 1.3% expected but higher than the 0.8% of November.
- The release of the PPI data led to a surge in the market-gauged probability of the Federal Reserve (Fed) cutting interest rates at its meeting in March 2024. The estimated odds rose to 77% at the time of writing after the PPI on Friday, from around 63% after the Consumer Price Index data released on Thursday.
- The odds now strongly favor the Fed cutting interest rates from 5.5% to 5.25% in March.
- This stands in stark contrast to the Swiss National Bank (SNB), which has not said it is considering cutting interest rates at all.
Swiss Franc technical analysis: USD/CHF could resume long-term downtrend
USD/CHF – the number of Swiss Francs (CHF) that one US Dollar (USD) can buy – declines on Friday, falling back into lockstep with the longer-term bear trend, Since the trend is likely to extend the move favors short-holders.
US Dollar vs Swiss Franc: 4-hour Chart
The current four-hour bar is painted red as the pair sells off after the release of the PPI data. A break below the January consolidation range lows at 0.8465 would add confirmatory technical evidence to the view the downtrend is resuming, and see prices likely fall back to the November lows at 0.8332.
It would take a break above the major trendline for the downmove at around 0.8600 to confirm a change in the short-term bear trend and more upside. But the next target after that would be the 200-four-hour Simple Moving Average (SMA) not much higher at circa 0.8630.
SNB FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.
Friday’s Session Sees Swiss Franc Weaken Against US Dollar
On Friday, the financial markets were closely watching the trading session between the Swiss Franc (CHF) and the US Dollar (USD). The session caused quite a stir as the Swiss Franc weakened against the US Dollar, sending ripples throughout the global economy. This significant movement in the currency market has caught the attention of investors, traders, and everyday individuals alike. But what exactly does this mean and why is the Swiss Franc weakening against the US Dollar? In this article, we will dive deeper into this topic to understand the implications and factors behind this shift in the currency market.
Understanding the Swiss Franc and US Dollar
Before we delve into the topic at hand, let’s first understand the Swiss Franc and US Dollar and their roles in the global economy. The Swiss Franc is the national currency of Switzerland, a country known for its political neutrality, stable economy, and strong banking sector. On the other hand, the US Dollar is the national currency of the United States, considered as the world’s leading economy and a major player in international trade and finance.
The Swiss Franc is often seen as a safe-haven currency, meaning investors tend to flock to it during times of economic uncertainty. This is due to the country’s stable economy, low inflation rates, and strong banking system, making the Swiss Franc a popular choice for investors looking for a safe bet. In contrast, the US Dollar is also seen as a safe-haven currency, but it is also a reserve currency, meaning it is widely used in international transactions and held in significant amounts by central banks around the world.
The Relationship Between Swiss Franc and US Dollar
The Swiss Franc and US Dollar have a close relationship, with the value of one currency often affecting the other. A stronger Swiss Franc means a weaker US Dollar and vice versa. This is because of the two countries’ close trade and economic ties, with Switzerland being one of the top trading partners of the United States.
The Swiss National Bank (SNB) and the US Federal Reserve also play a crucial role in the relationship between the two currencies. The SNB is responsible for setting the monetary policy of Switzerland, while the Federal Reserve does the same for the United States. Changes in interest rates and economic policies in either country can affect the exchange rate between the two currencies.
Friday’s Session: A Closer Look
During Friday’s trading session, the Swiss Franc weakened against the US Dollar, with the USD/CHF pair reaching a high of 0.9988. This means that it took more Swiss Francs to buy one US Dollar compared to the previous day. This movement was unexpected, as the Swiss Franc had been strengthening against the US Dollar in the previous sessions.
One of the main drivers behind this shift was the positive economic data coming out of the United States. The US economy has shown strong signs of recovery, with job growth and retail sales surpassing expectations. This resulted in an increase in demand for the US Dollar, causing the Swiss Franc to weaken. Furthermore, the announcement of a potential stimulus package by the US government also boosted investor confidence, making the US Dollar a more attractive investment option.
On the other hand, the Swiss economy has been facing some challenges. The country’s exports have been declining due to the global economic slowdown caused by the ongoing pandemic. This has put pressure on the Swiss Franc, making it less attractive to investors.
What Does This Mean for You?
The weakening of the Swiss Franc against the US Dollar may have different implications depending on your situation. Here are some practical tips for different scenarios:
– For travelers: a weaker Swiss Franc means that it is more expensive for travelers to visit Switzerland. This is because they will need more US Dollars to exchange for Swiss Francs.
– For importers: if your business involves importing goods from Switzerland, a weaker Swiss Franc can be beneficial as you will need less US Dollars to pay for the imported goods.
– For investors: the movement in the currency market can greatly impact your investments. It is essential to keep a close eye on currency pairs like USD/CHF and consider their relationship in your investment decisions.
Conclusion
Friday’s session saw the Swiss Franc weakening against the US Dollar, with multiple factors contributing to this shift. The close relationship between the two currencies and their important roles in the global economy make it crucial for investors and everyday individuals to understand the implications of such movements. As always, it is wise to stay informed, keep an eye on the news, and seek professional advice in making financial decisions.
