What are the three long-term economic indicators for the Swiss franc? This article will detail each of these, which will be beneficial for any fundamental analyst studying this currency.
The Swiss franc is an intriguing market to analyze fundamentally because of its long-held perception as a safe-haven currency. CHF, Switzerland’s money code symbol, is an abbreviation of the country’s Latin name, Confoederatio Helvetica, with F referring to the franc.
The Swiss franc is legal tender in Switzerland and Liechtenstein. Foreign exchange investors keenly followed CHF as it’s one of the most traded currencies globally and makes up about 4% of the dollar index.
It also forms part of the major pairs, a collection of instruments frequently speculated on due to their enormous liquidity and cheap spreads. A fundamentalist seeks to study the most impactful economic indicators behind the so-called safe-haven currency.
Broadly speaking, the three pertinent fundamental reports to observe with the Swiss franc are the Interest rate, Gross Domestic Product, and Consumer Price Index, which this article will cover.
Basic fundamentals of the Swiss franc
There’s no debate Switzerland is one of the most developed nations worldwide, respected for its human development, commercial value, and quality of life. Frequently ranking in the top 20 of largest global exporters, Switzerland boasts an impressive manufacturing industry.
Multinational corporations in the region produce scientific and musical instruments, specialist chemicals, pharmaceuticals, and other in-demand goods. Moreover, Switzerland has booming tourism, banking, and insurance sectors.
The Swiss National Bank (SNB) is the country’s central bank that consistently desires a weak currency to boost inflation purposefully. Most central banks prefer some inflation.
In a deflationary setting, i.e., when prices of goods do not rise – an economy cannot amplify output, resulting in less spending, lower incomes, cash hoarding, GDP contraction, and other negatively impacting effects.
For several decades, investors have long perceived the ‘Swissy’ as a safe haven due to several reasons, making it unique from other currencies. Firstly, Switzerland is esteemed for being financially and economically prosperous, boasting an enormous banking system.
Also, Switzerland has one of the lowest unemployment rates globally. More pertinently, Switzerland has consistently maintained positive trade balance numbers, meaning more money comes into the country than out. All in all, the Swiss franc is highly sought-after by investors, especially during economic downturns.
The impactful CHF economic indicators
With all the above thoughts in mind, let’s look at the three most impactful economic indicators and their implications for the Swissy.
- Interest rate: Regardless of the currency, experts consider the interest rate one of the primary drivers in valuation. This indicator primarily affects the level of foreign investment and credit borrowing from citizens in the country.
Like many recognized central banks, the SNB has decisively employed a negative interest rate policy for several years, -0.75% to be precise. Consequently, speculators will borrow large amounts of Swiss francs to invest in positive-yielding currencies and other assets.
This effect causes more currency usage, creating higher demand for trading it, resulting in higher value. Furthermore, as part of the monetary policy, the SNB is conscious of managing inflation and stimulating economic advancement with the interest rate.
Although the central bank has maintained a -0.75% rate since 2015 without deviation, forex traders still keep a close eye on the release nonetheless. Just the mere announcement typically has some influence on the currency on a small time scale.
If a surprise change does occur, the impact can be more substantial in the long term. The frequency of the interest rate release is a characteristic of numerous central banks who typically announce eight times a year.
In recent years, the SNB seems to have released the data quarterly, typically on a chosen Thursday in March, June, September, and December. The release time is between 03h30 and 04h30 EST. Analysts consider a lower than anticipated rate as bearish, while a higher than expected figure as bullish for the CHF.
- Gross Domestic Product (GDP): The GDP is another critical fundamental metric for analysts. It evaluates the aggregate market value of what a country produces in finished goods and services, typically over on a quarterly basis.
More simply, the higher the GDP, the more productive a nation is. This generally increases economic prosperity, resulting in more jobs and greater spending – all are bullish factors for the currency.
Conversely, any percentage declines in the GDP signal the opposite, representing a bearish bias and less demand for the CHF. The Swiss Federal Statistical Office is responsible for publishing this data.
While they do not follow a strict three-month gap, the report does come out exactly four times annually looking at the previous quarter.
- Consumer Price Index (CPI): The CPI, which measures consumer price changes in a basket of consumer goods and services, is an indicator of inflation.
This index is a reliable assessment for evaluating the cost of living and consumers’ purchasing power. The result of any economic indicator seeks to observe a currency’s demand. If the CPI increases, that’s a bullish sign for CHF showing more citizens can afford higher prices.
Conversely, if the CPI decreases, it’s a bearish sign for the currency as it suggests consumers aren’t affording prices. The Swiss Federal Statistical Offices publishes the report usually on a chosen day of the first or second week of the month between 02h30 and 08h30 EST.
After considering all the above three indicators, a fundamental analyst will look at trends in the numbers. While each of these datasets is individual, there still is a relationship. For instance, if the CPI declines for at least two months, the GDP will likely follow suit.
Both metrics measure overall consumer spending and productivity. Therefore, they do share some correlation and affect the demand for a currency. Regardless of the market, fundamentals work best for traders with a long-term outlook since changes aren’t typically seen at the moment.