Swiss Franc Vulnerable As SNB Threat Grows
The Swiss National Bank raising their forecasts for inflation and growth also helped generate bullish Franc sentiment. Consumer prices are expected to grow by 0.7% in 2010 up from their previous forecast of 0.5%, eventually accelerating to 0.9% in 2011. However, the SNB did caution that the danger of deflation can’t be entirely ruled out which has them on alert to defend any excessive Franc appreciation against the Euro. The central bank also bolstered their outlook for growth to 1.5% from 0.5%-1.0%, as they see tangible signs of a recovery. Swiss consumer prices decelerated from 1.0% to 0.9% in February despite a 0.1% increase during the month, justifying the central banks concerns.
A continuation of risk appetite should see further Franc gains against the dollar and Yen. However, signs that returning growth is fueling broader inflation could raise interest rate expectations. The FOMC rate decision may be the biggest event risk for the Swiss unit as rising interest rate expectations will weigh on the outlook for growth, generating risk aversion. The domestic economic calendar isn’t typically market moving with export data and the SECO forecast the highlights. The Swiss trade balance report for February will provide the temperature for foreign demand and whether the pace of the recovery is sustainable. SECO forecasts will be compared to those of the central bank and major discrepancies could alter sentiment and the outlook for monetary policy. Of course the wild card is possible SNB intervention, especially with the EUR/CHF testing the levels that were seen when the central bank made its major move in March, 2009-JR
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