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Swiss Producer and Import Prices Falter, Raising the Risks For Intervention

Thursday, 14 May 2009 10:52:05 GMT  |  David Song, Currency Analyst, Geng Chen, DailyFX Research

Producer and import prices in Switzerland weakened for the ninth consecutive month in April as energy costs continued to fall further. The monthly reading showed a 0.2% drop from March, which was much worse than the 0.8% increase projected by economists, while the annualized rate slipped 3.6% from the previous year to mark the biggest contraction since1987.

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CHFUSD – Producer and import prices in Switzerland weakened for the ninth consecutive month in April as energy costs continued to fall further. The monthly reading showed a 0.2% drop from March, which was much worse than the 0.8% increase projected by economists, while the annualized rate slipped 3.6% from the previous year to mark the biggest contraction since1987, and conditions are likely to get worse as the region faces its worst economic downturn in over a quarter century. Meanwhile, SNB Chairman Jean Pierre Roth's warned that the economy is "on the edge of a deflationary development" and forecasts consumer prices to fall 0.5% this year however, as the downturn in the global economy intensifies, the central bank may continue to intervene in the currency markets to stem the appreciation in the Swiss franc in an effort to mitigate the downside risks for growth and inflation. For more news and resources, visit the new Swiss franc Currency Room.

EURUSD – The European Central Bank’s monthly report said that the interest rate is appropriate after taking into account all of the available information at hand, and reiterated that the central bank will continue to utilize policy tools beyond the overnight lending rate to shore up the ailing economy. Meanwhile, Bundesbank President Axel Weber dropped his reluctance to adopt unconventional measures to manage monetary policy, and stated that EUR 60B would be the ‘maximum’ that the central bank would offer to purchase euro-denominated bonds, while council member Marko Kranjec said that the central bank is ‘likely’ to spend more than EUR 60B as the economic downturn intensifies. Moreover, an ECB survey showed professional forecasters cut their inflation projections to 0.5% for this year and 1.3% for 2010 from an initial estimate of 0.9% and 1.6%. This is clearly below the central bank's 2% target for price stability, and the group anticipates economic activity to weaken further this year as they expect the annual rate of growth to contract 3.4% in 2009. Discuss the topic and your trade ideas in the EUR/USD Forum.

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