- The US Dollar appreciates for the third consecutive day, and reaches daily highs, at 08000.
- The US Dollar appreciates against its main peers ahead of the US CPI release.
- Dovish comments by SNB Schlegel have increased bearish pressure on the CHF..
The US Dollar is outperforming its main peers in a calm trading session on Thursday, with investors looking from the sidelines ahead of the release of the US CPI data. The Greenback appreciates for the third day in a row against a weaker Swiss Franc, and is testing the 0.8000 psychological level after bouncing at 0.7915 earlier this week.
Dollar sellers are taking profits with a Fed rate cut next week fully priced by the market. The downward benchmark revision of US Nonfarm Payrolls, released on Tuesday, and the benign producer price data on Wednesday have set the conditions for further Fed monetary easing.
The US Dollar picks up despite soft US inflation data
US Producer Prices Index contracted at a 0.1% pace in August, according to data from the US Labor Department, against expectations of a 0.3% growth and following a 0.7% rise in July. Year-on-year, the PPI eased to 2.6% from 3.1% instead of accelerating to 3.3% as the market had forecasted.
Likewise, the core producer prices declined 0.1% on the month and grew at a 2.8% yearly pace, down from 0.4% and 3.4% respectively in July.
Investors are now looking at August’s CPI to assess the pace and the scope of the Federal Reserve easing cycle. The market consensus anticipates a mild pick up to 0.3% on the month and 2.9% year-on-year, from July’s 0.2% and 2.7% respective levels. Core inflation is expected to have remained steady at 0.3% in August and 3.1% higher than in the same month last year.
The Swiss Franc, on the other hand, came under growing bearish pressure on Wednesday, following dovish remarks from the Swiss National Bank (SNB) Chairman Martin Schlegel, stating that the bank will “not hesitate” to cut rates into negative levels if conditions warrant it.
Swiss economy FAQs
Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.
Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.
As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.
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