Today, the Swiss franc remains the strongest currency in the FX market, gaining more than 0.8% against the dollar and approaching multi-year highs. What is leading to the strengthening of the Swiss currency?
- The SNB sees less need to intervene to support the franc, given the potentially favorable broader trend for the currency, leading to its appreciation
- The Swiss National Bank (SNB) sold $44.73 billion worth of foreign currency in the third quarter. This is likely to be the last major sell-off for some time, after Swiss inflation returned to its target range of 0-2%.
- Fund managers build highest since 2021 net-long position on CHF
- The KOF index indicates a modest recovery in the Swiss economy. The index rose to levels not seen since April 2023 and signals further improvement
- A momentary correction after yesterday's gains in the weakening dollar index (USDIDX) supported declines on the USDCHF pair
The Swiss National Bank slightly reduced its emphasis on supporting the franc in the third quarter of the year. The SNB sold foreign currencies equivalent to 37.6 billion francs. That marks a drop from 40.3 billion francs in the previous quarter, according to the bank's announcement today, traditionally delayed by a quarter. Less support for the franc, however, has not affected the currency negatively, as investors assess next year's trends for the Swiss economy, after inflation returned to target.
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Create account Try a demo Download mobile app Download mobile appKOF trend supports Swiss franc
Today the KOF economic indicator came in at 97.8 points in December, 0.6 points higher than in November (revised from 96.7 to 97.2 points). It thus moved closer to the long-term average. Growth was driven primarily by private consumption and improving indicators in manufacturing. Data in other sectors remained virtually unchanged m/m. While the outlook for the Swiss economy in Q1 2024 remains uncertain, the KOF indicates a gradual improvement that has been ongoing for more than eight months.
- In the industrial and construction sectors, indicators were very positive in December. However, data on inventories and the overall business sentiments still indicate negative trends. Thanks to the order book and high employment indicators, they remain stable.
- In the manufacturing sector, indicators for the textile, mechanical engineering and electrical industries weakened readings to the greatest extent. In contrast, indicators for the metal, paper and printing sectors show positive development.
Asset managers bullish on CHF
The positioning of asset managers has increased significantly, especially in the context of long positions rising and short positions decline. Source: Bloomberg Financial LP
The SNB has been selling foreign currencies as an inflation hedge. However, it seems that this process may be nearing its end (the inflation growth rate has been within the Bank's preferred target range). Source: Bloomberg Financial LP
The USDCHF pair is trading at its lowest levels since 2011. Source: xStation
