chf news

Weekly Outlook: Swiss Leading Indicator to Show Solid National Growth

Friday, 22 September 2006 18:41:41 GMT  |  Terri Belkas, Junior Currency Analyst

At the beginning of the week, Swissie looked set to trade sideways, but comments by the SNB’s Blattner lent strength to the currency. Additionally, M&A news announced early Thursday allowed the Swiss franc to close out the week about 200 points higher against the greenback and up 100 points against the euro. With mixed estimates for next week’s economic indicators, it could be a toss up for both Swissie bears and bulls. 

 

The week going forward should yield mixed results for Switzerland, as the most import gauge on the schedule, the KOF Swiss Leading Indicator, is anticipated to hold at 2.42 in the month of September, well above average and near a 6 ½ year high. The economy has shown extremely solid growth throughout Q2 and into Q3, as GDP has posted a strong 3.2%, the labor market has tightened, and producers have seen accelerating prices. Meanwhile, the UBS Consumption Indicator is estimated to rise to 1.900 in August from 1.881in July, as household spending has been encouraged by low unemployment numbers and mounting consumer sentiment. Wrapping up the week will be the SECO September Economic Forecasts, in which USD/CHF shorts will be looking for higher revisions and an optimistic outlook. Given the Swiss National Bank’s intent to continue with monetary policy tightening to 2.00% by year end, strong forecasts on Friday should only help to boost Swiss strength.

 

Economic data proved to be inconsequential to Swiss franc price action this past week, as neither release on the agenda sparked reaction. What did have effect, though, was when SNB Vice Chairman Blattner commented Wednesday that rates had not yet reached normal levels. However, he also noted that the central bank did not need to accelerate its monetary policy, effectively negating the possibility of a 50bp hike in December. M&A activity gave a boost to Swissie late week as European drug maker Merck announced it was buying Swiss based Serono for $13 billion. In economic news, the Swiss trade balance posted lower than expected at 0.58 billion francs as a result of weaker exports to Switzerland’s fellow European countries, where confidence and growth have slowed. Meanwhile, adjusted real retail sales of 2.1% benefited as consumers saw increased disposable income as a result of accelerated hiring. Additionally, hot weather encouraged spending on seasonal items such as mineral water, ice cream and barbecue supplies. Although this past week’s data wasn’t exemplary of a booming economy, the underlying factors of economic growth remain and are considered positive.

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