For the past month, it seems that the Swiss economy seems to be picking up slowly. A retail sales report indicated that sales rose from May to June by 0.9%, suggesting that consumer consumption may be picking up. Sentiment also seems to be improving amongst investors, analysts, and purchasing managers, as the ZEW Economic Expectations report printed a reading of 18.6 – a significant improvement from July’s reading of 0.0. At the same time, the latest SVME purchasing managers index posted a score of 50.2, the first time in 10 months that the index surpassed the 50 boom/bust point. Lastly, Swiss GDP fell much less than expected in the last quarter, sliding down by just 0.3%, after it was expected that it would fall by 0.9% from the 1st quarter to the 2nd quarter.
All of these upbeat economic readings gave the Swissy the fuel needed to stage a stellar performance against the Buck early in September. It opened the month at 1.0659 and is currently trading in the 1.0350 area. That’s already a 3.5% gain and we’re just halfway through the September! What’s going on here?!
Still, chalking price action to Swiss fundamentals alone would be… imprudent, in my opinion. Take a look at the EUR/CHF cross. Many experts look at this pair to gauge whether the SNB is planning something sneaky. It seems that traders are afraid to sell the pair as they fear currency intervention from the central bank. In fact, if you look at other majors, it is the dollar that is holding the short end of the stick as it has been sold off furiously versus most major currencies!
Are we really seeing a demand for the Swissy… or is the dollar really that unattractive? The truth of the matter is, more often than not, “experts” can only speculate why currencies act the way they act. Exchange rates are always relative. Whether it’s a CHF or a USD move, we can’t really pinpoint for certain! On one hand, it’s possible that there is a high demand for the CHF – otherwise there wouldn’t be any threats of currency intervention by the SNB, right?! On the other hand, currency traders may just be looking for alternatives to the US dollar, as showed be the dollar’s weakness across the board. Could it be both – who knows!?
Come Thursday, the SNB will release its Libor rate and monetary policy assessment. Just like most central banks, the SNB is expected to hold rates at their current level of 0.25% as economic growth remains unsteady.