Last Friday, Switzerland's KOF leading indicator came in well below expectations. To make matters worse, the prior month was revised lower. With the world talking about both recession and facing massive inflation, it would appear the Swiss Franc would be in a good position. Particularly considering that, unlike its neighbors, Switzerland has just 3.4% inflation in the latest measure.

With a better-performing economy, the SNB has substantial room to raise rates and keep policy steady. But that room might start to shrink substantially if the economy starts to flag. Hence, a lot more attention could be on leading financial indicators, and that could leave investors potentially looking to take advantage of Swissie strength to be a little more worried.

The issue that's worrying people

The thing is, Switzerland is a highly export-oriented country, and has a lot of exposure to the EuzoZone. But not just the EuroZone, where the economy is still growing, relatively speaking. But specifically to Germany, Switzerland's largest trade partner. Even bigger than the US, Germany accounts for 15% of Switzerland's trade. And Germany just reported zero growth in the last quarter.

The big difference, though, is that Germany's economy is supervised by the ECB, which has been very hesitant to tighten rates despite rising inflation. The SNB doesn't appear to have such hesitancy. So, even if the underlying economic fundamentals aren't as rosy as they were, Swiss monetary policy could be tighter than the EuroZone. But, given the trade connection between the two, it would be unsurprising if the SNB policy actively considers or even anticipates ECB policy. Particularly if the anti-fragmentation tool is seen as working and the ECB finally starts to take inflation seriously.

What to look out for

Traders looking for a haven might be mindful of a ceiling for SNB's policy, which could be constrained by economic activity. The SNB is much more mindful of the impact its policy has on Swiss exporters and the overall economy than comparable central banks. They didn't hesitate to take the markets completely by surprise to raise rates by 50bps. Now that the ECB has followed the SNB higher, Swiss rates are -0.25 and behind the shared economy. Unless there are major signs of a market downturn, the market could be pricing in another SNB rate hike.

Swiss consumer confidence has been trending lower and missing expectations since the middle of the pandemic recovery last year. Analysts are forecasting it will fall further to -29 from -18 at the last release. That would be the worst result since the bottom of the pandemic.

On the other hand, Swiss Manufacturing PMI for July is expected to remain still somewhat upbeat, if also falling substantially. The consensus is for the survey to show 57.4 compared to 59.1. While still in expansion territory, it's still would be the worst result since before covid vaccines were available. We should also note that through the rest of Europe, almost all PMIs have missed expectations, which might be a sign of what's to come with the Swiss data.

This market forecast is for general information only. It is not an investment advice or a solution to buy or sell securities.

Authors' opinions do not represent the ones of Orbex and its associates. Terms and Conditions and the Privacy Policy apply.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. There is a possibility that you may sustain a loss of some or all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD struggling around 0.6400 and at risk of piercing the year’s low

AUD/USD struggling around 0.6400 and at risk of piercing the year’s low

The AUD/USD pair has sensed buying interest from 0.6400 and is marching higher gradually in early Tokyo. The aussie bulls have attempted a rebound despite the stability of the risk-off impulse in the market.

AUD/USD News

EUR/USD: Price balancing on a tightrope over the abyss ahead of NFP

EUR/USD: Price balancing on a tightrope over the abyss ahead of NFP

EUR/USD was sold off on Thursday as investors get set for the outcome of Friday's key US event in Nonfarm Payrolls. US yields and the US dollar both rallied as investors dial back the sentiment surrounding a picot from the Federal Reserve.

EUR/USD News

Gold oscillates at a make or break around $1,710.00, US NFP eyed

Gold oscillates at a make or break around $1,710.00, US NFP eyed

Gold price has slipped modestly after facing barricades of around $1,715.00 in the Tokyo session. The precious metal is expected to slip further to near $1,700.00 as yields are hovering at elevated levels amid hawkish commentaries from Fed.

Gold News

Polygon’s environmental conservation reaches oceans after achieving carbon neutrality in 2022

Polygon’s environmental conservation reaches oceans after achieving carbon neutrality in 2022

The crypto industry has been in the crosshair of many environmentalists as the process of transaction verification and block generation tend to be power-consuming. Despite a 21% rise, MATIC continues to tread below the uptrend support line.

Read more

Nonfarm Payrolls Preview: Five scenarios for trading King Dollar as markets plead for pain Premium

Nonfarm Payrolls Preview: Five scenarios for trading King Dollar as markets plead for pain

No pain, no gain – this gym idiom resonates with stock bulls. The Federal Reserve has said it is willing to accept – and even wants to see – economic pain to see inflation falling. Last month was painful in financial markets, but did American employment also feel the pinch?

Read more

Majors

Cryptocurrencies

Signatures