USD/CHF recovers above 0.8450, US PCE inflation data in focus

VaselineAugust 30, 2024

0 3 minutes read

USD/CHF recovers above 0.8450, US PCE inflation data in focus

USD/CHF is gaining momentum near 0.8480 in the first European session on Friday.
US GDP rose more than expected in Q2; Initial jobless claims fell last week.
The leading Swiss KOF indicator improved to 101.6 in August from 101.0 in July, better than expected.

USD/CHF is extending its recovery around 0.8480 in early European trading hours on Friday. The pair’s gains are supported by a stronger US dollar (USD) after stronger-than-expected growth numbers from the US. Traders will turn their attention to US personal consumption expenditure (PCE) inflation data on Friday, which could provide an indication of the US interest rate outlook.

US gross domestic product (GDP) expanded faster than expected in the second quarter, reducing bets for a bigger 50 basis point (bps) rate cut by the Federal Reserve (Fed) in September and lifting the dollar verdant. In the second GDP estimate released by the Bureau of Economic Analysis (BEA) on Thursday, US GDP grew at an annualized rate of 3.0% in Q2, up from 2.8% in the initial estimate. Elsewhere, initial US jobless claims fell to 231,000 in the week ended August 24, below the 232,000 forecast.

The Personal Consumer Expenditure (PCE) price index is expected to show a 2.6% year-over-year increase in July. The Fed’s preferred gauge of inflation, measured by core PCE, is expected to rise to 2.7% YoY in July from 2.6% in June. The hotter-than-expected reading could dampen expectations of a bigger Fed rate cut and support the USD.

On the Swiss front, data released by the KOF Swiss Economic Institute showed that the country’s leading KOF indicator came in at 101.6 in August from 101.0 in July, better than the estimate of 100.6.

Meanwhile, ongoing geopolitical tensions in the Middle East and Russia-Ukraine could boost safe-haven currencies such as the Swiss franc (CHF). Sky News reported late Thursday that Russia had carried out several air strikes on Ukraine this week, costing Moscow an estimated $1.3 billion. Meanwhile, Ukraine has warned it is closely monitoring its border with Belarus after a recent troop build-up there.

Frequently Asked Questions of the Swiss Economy

Switzerland is the ninth largest economy measured by nominal Gross Domestic Product (GDP) on the European continent. Measured by GDP per capita – a broad measure of average living standards – the country ranks among the highest in the world, meaning it is one of the wealthiest countries globally. Switzerland tends to rank high in global rankings in terms of living standards, development indices, competitiveness or innovation.

Switzerland is an open market economy based mainly on the service sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a major exporter of watches and clocks and is home to leading firms in the food, chemical and pharmaceutical industries. The country is considered an international tax haven, with significantly low corporate and income tax rates compared to its European neighbors.

As a high-income country, the growth rate of the Swiss economy has declined in recent decades. However, its political and economic stability, high level of education, leading firms in several industries and tax haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically remained relatively strong against its major peers. In general, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate the CHF. Conversely, if economic data indicates a weakening of momentum, the CHF is likely to depreciate.

Switzerland is not a commodity exporter, so in general, commodity prices are not a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both gold and oil prices. With gold, the safe haven status of the CHF and the fact that the currency was backed by the precious metal means that both assets tend to move in the same direction. With oil, a document published by the Swiss National Bank (SNB) suggests that rising oil prices could negatively impact the CHF valuation, as Switzerland is a net importer of fuel.

VaselineAugust 30, 2024

0 3 minutes read

Frequently Asked Questions of the Swiss Economy

Vaseline

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