USD/CHF recovers above 0.8450, US PCE inflation data in focus
|- USD/CHF gains momentum near 0.8480 in Friday’s early European session.
- US GDP expanded more than expected in Q2; Initial Jobless Claims fell last week.
- The Swiss KOF Leading Indicator improved to 101.6 in August from 101.0 in July, better than expected.
The USD/CHF pair extends its recovery around 0.8480 on Friday during the early European trading hours. The uptick of the pair is supported by the stronger US Dollar (USD) after the stronger-than-expected US growth number. Traders will shift their attention to the US Personal Consumption Expenditure (PCE) inflation data on Friday, which might offer some hint about the US interest rate outlook.
The US Gross Domestic Product (GDP) expanded faster than expected in the second quarter, reducing bets for a larger 50 basis points (bps) rate cut by the Federal Reserve (Fed) in September and lifting the Greenback. In the second estimate of GDP released by the Bureau of Economic Analysis (BEA) on Thursday, US GDP grew at a 3.0% annualized rate in Q2 from 2.8% in the initial estimate. Elsewhere, US Initial jobless claims fell to 231,000 for the week ended August 24, below the 232,000 estimated.
The headline Personal Consumption Expenditures (PCE) Price Index is projected to show an increase of 2.6% YoY in July. The Fed's preferred inflation gauge, as measured by the core PCE, is estimated to rise to 2.7% YoY in July from 2.6% in June. The hotter-than-expected reading could dampen the expectation of a larger Fed rate cut and underpin the USD.
On the Swiss front, data released by the KOF Swiss Economic Institute revealed that the country’s KOF Leading Indicator came in at 101.6 in August versus 101.0 in July, better than the estimation of 100.6.
Meanwhile, the ongoing geopolitical tensions in the Middle East and Russia-Ukraine might boost the safe-haven currency like the Swiss Franc (CHF). The Sky News reported late Thursday that Russia carried out several air attacks on Ukraine this week, costing Moscow an estimated USD1.3 billion. Meanwhile, Ukraine has warned it is closely monitoring its border with Belarus after a recent buildup of troops there.
Swiss economy FAQs
Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.
Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.
As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.
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