The liquidation of carry trades has sent the Swiss franc higher against the US dollar, Euro and British pound, but carry trade related flow may not be the only reason why the Swissie is stronger. After falling to a 21 month low, Swiss manufacturing activity rebounded last month. It is now at 60.7, well within expansionary territory.
Tomorrow, consumer prices are due for release and we expect the weakness of the Swiss franc to drive CPI higher, but that may not be enough to prompt the Swiss National Bank to raise interest rates. SNB board member Thomas Jordan said today that even though they remain vigilant on franc weakness, they do not see any signs of the franc stoking inflation and rate differential still favors carry trades. Is Jordan telling the markets that it is ok to keep selling francs for carry trade purposes? Perhaps, but when it comes to central bankers, they have been trained to give as little information in as many words as possible. There was no Eurozone data released this morning, but manufacturing PMI will be due for release tomorrow. We will be using PMI as a leading indicator for German factory orders next week.