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Swiss Franc Dips As Markets Confident on US-China Trade Progress

October 10, 2019 at 18:17 by Andrew Moran

10, 20, 50 and 100 Swiss franc banknotesThe Swiss franc is trading slightly lower on Thursday as investors are confident that the US-China trade negotiations are progressing, a development that would diminish the franc’s safe-haven appeal. The near-term trend might please the central bank amid efforts to fight the currency’s overvaluation. But is it enough to prevent further monetary easing? Analysts suggest that it is not.

Markets cheered after President Donald Trump said he plans to meet with Chinese Vice Premier Liu He on Friday. He is leading the Chinese trade delegation in Washington this week. Reports suggest that progress is being made as both sides might implement a currency pact and suspend tariff hikes that are scheduled to be implemented next week.

Prior to the talks, China said that it would not negotiate on industrial policy and state subsidies and the US added to its list of blacklisted Chinese companies. Although both sides have shown signs of good faith, market optimism diminished and affected equities.

For now, the optimism is back on, which would be good news for a slowing global economy and Switzerland. But if a trade deal is not reached, then it will further impact the international economy, triggering further easing by other central banks, including the Swiss National Bank (SNB).

According to UBS Group AG, the SNB will cut interest rates next spring, deepening its subzero rates. Because the Federal Reserve and the European Central Bank (ECB) will respond to recession risks with easing, the SNB will react with more rate cuts. As a result, according to UBS analysts, there will unlikely be a strong appreciation of the franc over the next 12 months.

On the data front, foreign exchange reserves rose to $778 million in September, up from $776 million in August, reports the SNB. The State Secretariat for Economic Affairs reported that the unemployment rate was unchanged last month at 2.1%, the lowest it has been since November 2001.

Meanwhile, in other SNB news, the central bank is partnering with the Swiss SIX Exchange to mull over digital central bank money that could be utilized to complete transactions of tokenized assets. This move would increase Switzerland’s status as a cryptocurrency nation.

The USD/CHF currency pair dipped 0.01% to 0.9959, from an opening of 0.9961, at 18:10 GMT on Thursday. The EUR/CHF surged 0.41% to 1.0973, from an opening of 1.0928.

If you have any questions, comments, or opinions regarding the Swiss Franc, feel free to post them using the commentary form below.

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