The Swiss franc was little changed against the U.S. dollar this week, while the low-yielding currency advanced against the euro for the second consecutive week, and as SNB Governor Jean-Pierre Roth pledges to stem the ‘appreciation in the Swiss franc vis-à-vis the euro,’ the central bank may continue to intervene in the foreign exchange market as interest rate falls close to zero.
[B]
Swiss Franc May Falter as Investors Expect SNB to Intervene Once Again[/B]
[B]Fundamental Outlook for Swiss Franc: [/B][B]Bearish[/B]
- Swiss Producer and Import Prices Fall Further, Reaching Its Lowest Level in 10-Years
- Retail Sales Falls 3.8% in February
The Swiss franc was little changed against the U.S. dollar this week, while the low-yielding currency advanced against the euro for the second consecutive week, and as SNB Governor Jean-Pierre Roth pledges to stem the ‘appreciation in the Swiss franc vis-à-vis the euro,’ the central bank may continue to intervene in the foreign exchange market as interest rate falls close to zero. After lowering the benchmark interest rate to 0.25% in March, policymakers said that they saw ‘a risk of negative inflation over the next three years,’ and took unprecedented steps to shore up the economy as the board forecasts the annual rate of growth to contract between 2.5-3.0% this year however, the rapid decline in price growth paired with the surge in unemployment has spurred speculation that the SNB will increase its currency purchases as the outlook for growth and inflation falter.
Market participants speculate that the central bank will step in once again to shore up the economy as the EUR/CHF slipped to a low of 1.5077 this week, and as fundamental headwinds continue to reinforce fears of a deepening downturn in the region, policymakers may act sooner rather than later as global trade conditions deteriorate. As a result, Governor Roth, who is scheduled to retire at the end of this year, already named Philipp Hildebrand as the new chairman of the governing board, and as Mr. Hildebrand, who shares similar views with Mr. Roth, is expected to carry out current objectives set in place, market participants anticipate that the SNB will continue to put a floor on the exchange rate as the region is expected to face its worst economic downturn since 1975. Meanwhile, Jean-Pierre Danthine, the newly appointed SNB member, spurred hopes for a recovery as he expects economic conditions to improve by January 2010, but went onto say that the annual rate of unemployment is likely to remain at undesired levels as the spill-over effects of the financial crisis takes a toll on the real economy. As policymakers expect the labor market to weaken further, the outlook for private-sector spending, which accounts for nearly half of the economy, remains bleak, and deteriorating fundamentals may lead the central bank to take additional steps to stem the risks for deflation as the economic downturn intensifies. Nevertheless, as risk trends continue to dictate price action in the financial markets, the drop in market sentiment could boost demands for the low-yielding currency over the following week, which could lead the euro-franc to make a run for 1.5048, the 50-Day moving average, as investors curb their appetite for higher risk/reward investments however, as market participants anticipate the SNB to increase its currency purchases, the pair may push higher to retrace the sell-off from the previous month. - DS