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Swiss Franc Tries to Recover From Two-Month Low Amid Retail Sales Crash

June 2, 2020 at 13:29 by Andrew Moran

10, 20, 50 and 100 Swiss franc bills at an angleThe Swiss franc is trying to recover from a two-month low against the US dollar as investors pour into the currency amid global economic and political uncertainty. Despite the central bank’s best efforts to install a ceiling on the franc’s appreciation, traders are still seeking safe-haven assets in the event of another market meltdown, which some Wall Street titans have warned about in recent weeks.

According to the Swiss Federal Statistics Office (SFSO), retail sales plummeted 14.7% in April, down from the 6.7% drop in March. Annualized retail sales are now down nearly 20%, the sharpest drop since 2001. Like other key markets, non-food sales cratered more than 40%, but it was the food industry that enjoyed a 3.5% gain.

Switzerland’s manufacturing is showing a gradual rebound as the economy begins to reopen. The procure.ch manufacturing purchasing managers’ index (PMI) jumped from 40.7 in April to 42.1 in May – anything below 50 indicates a contraction. Although there were signs of improvement, the PMI reading still pointed to declines in production, orderbooks, employed, and inventories purchased.

Later this week, the first-quarter gross domestic product (GDP), inflation rate, and foreign exchange reserves will be published.

Over the last month, the Swiss National Bank (SNB) has been talking down the franc by telling financial markets that it will continue to depreciate the currency to support the export-oriented economy. SNB head Thomas Jordan recently pledged to intervene more in foreign exchange markets through a mix of negative interest rates and foreign currency acquisitions.

He told a digital conference hosted by UBS AG:

We have no signal that the Swiss franc is anything other than highly valued. Our policy is warranted, and even more important in the period in front of us. We have a big balance sheet, this is true. As long as the benefits are bigger than the costs, we should expand the balance sheet. We have room… to cut rates further if necessary. At this moment, -0.75% is the right level for the money market rate.

Year-to-date, the SNB’s foreign currency holdings have spiked to $825.59 billion. Its US equity investments also ballooned 22% as the central bank increased its stakes in Microsoft, Apple, Amazon, Facebook, and Google.

The USD/CHF currency pair rose 0.21% to 0.9627, from an opening of 0.9607, at 12:24 GMT on Tuesday. The EUR/CHF advanced 0.5% to 1.0754, from an opening of 1.0702.

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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