Swiss Franc Drops on Slowing Economic Indicators

NEW YORK (Forex News Now) – In response to poor global forex news regarding the Swiss economy, the Swiss franc dropped considerably against the euro, suggesting that the Swiss economy is beginning to slow in its efforts to recover.

The Swiss franc, long seen as a safe haven currency for investors fleeing the sinking dollar, fell 0.17% against the euro, it’s chief major pairing, to 1.342. This drop enlarges the weekly drop to just over 1.2%, with a 4.1% decline throughout the month of September.

The global forex news that was released today and yesterday that sent CHF in a decline involved results from a purchasing manager’s index and August retail sales reports.  The SVME purchasing managers’ index charts the Swiss economy’s output and gauges whether or not the economy is expanding or contracting. Analysts anticipated a drop to 60.7 from 61.4 in August, but instead saw a deeper decline of 59.7.

Any move in the PMI towards 50 suggests that the economy is contracting, while moves away from 50 suggest an expansion in the economy.

Retail sales

Retail sales for the month of August also disappointed analysts, increasing by only 0.5% from August, 2009. The increase in July, by contrast, was a healthy 4.7%.  The disappointment in the August results could stem from a better-than-expected July increase, but analysts are still nervous about the small figure even following a solid performance the month previous.

The Swiss National Bank had anticipated to a degree the cooling of the Swiss economy, stating in September that recovery “is not yet sustainable”, adding that there is “a possibility that inflation will temporarily turn slightly negative” in 2011.

The move into a deflationary period would explain the rally witnessed over the past week in EUR/CHF.

Not all bad

The global forex news for the Swiss franc was not completely disappointing, however.  In the currency markets, the franc rose against the dollar by nearly one percentage point to 0.9733, increased by 0.11% against the pound to 1.5423, and gained 0.68% against the yen to 85.47.

That performance is little comfort for those watching the fate of the Swiss franc versus the euro, since the EUR/CHF pair is most indicative of the overall strength of the currency and the Swiss economy. It is likely that EUR/CHF will continue to rally in the weeks ahead as more bad news filters in regarding the slowing of the Swiss economy amidst an ongoing recovery.