Swiss Franc Down on Weak GDP, Euro Makes Headway Ahead of ECB Meeting

The Swiss franc was among the weak currencies on Tuesday amidst increased demand for carry trades, and as the State Secretariat for Economic Affairs said that Swiss Q1 GDP contracted for the third straight quarter at a rate of -0.8 percent from the previous quarter, the sharpest drop since Q2 1994. The decline came on the back of a 5.4 percent plunge in exports and a 0.4 percent drop in gross fixed capital spending. Even worse, the annual rate of growth fell 2.4 percent, the worst since the start of records in 1981. That said, consumption actually rose 0.1 percent, signaling that domestic demand is still holding up fairly well despite the global economic slowdown.

Meanwhile, the euro gained traction against most of the majors, as EUR/USD broke above 1.4250 and EUR/GBP tested former support at 0.8660. On Wednesday, Eurostat’s second release of Euro-zone GDP for Q1 shouldn’t be too market moving, as they are expected to confirm their initial estimates of a record 2.5 percent contraction from Q4, and a record 4.6 percent contraction a year earlier. However, with the European Central Bank scheduled to meet this week and announce their policy decision on Thursday morning, traders should watch out for a surprise revision, as this could impact sentiment amongst ECB policy officials. Indeed, a greater-than-expected decline in GDP would be bearish for the euro as the news would add to concerns that the Euro-zone nations haven’t done enough to revive their respective economies, and would put pressure on the central bank to take more aggressive action.

[B]Related Article: Euro Weekly Trading Forecast[/B]