EUR/CHF steady as markets digest Swiss inflation and Eurozone data

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The Euro (EUR) trades little changed against the Swiss Franc (CHF) on Thursday, with markets digesting fresh economic data from Switzerland and the Eurozone. At the time of writing, EUR/CHF is trading around 0.9313, snapping a two-day winning streak.

EUR/CHF loses upside momentum after Swiss inflation data.
Swiss CPI stabilises in December, easing fears of a return to negative interest rates.
Traders assess mixed Eurozone data and steady signals from the ECB.

Data released by the Swiss Federal Statistical Office showed that the Consumer Price Index (CPI) stabilised in December, unchanged on the month after a 0.2% decline in November and beating market expectations for a 0.1% drop. On an annual basis, CPI rose 0.1% in December, in line with forecasts, after stagnating at 0.0% in November.

The figures reinforced expectations that the Swiss National Bank (SNB) will keep interest rates unchanged in the months ahead, allowing it to maintain a cautious stance while easing market fears over a possible return to negative interest rates.

At its December 11 policy meeting, the Swiss National Bank left its key interest rate unchanged at 0%. Minutes from the meeting, released earlier in the day, showed that policymakers saw little urgency to adjust policy at this stage. “The Governing Board found that there was currently no need for monetary policy action,” the SNB said. “Neither a tightening of monetary policy nor a further easing of monetary policy would be appropriate at this juncture.”

In the Eurozone, the European Commission’s Business Climate Index improved to -0.56 in December from -0.66 previously, pointing to a modest stabilisation in corporate conditions. Consumer Confidence strengthened to -13.1 from -14.6, while the Economic Sentiment Indicator edged lower to 96.7 from 97.1.

On the inflation front, Eurozone Producer Price Index (PPI) rose 0.5% on the month in November, accelerating from 0.1% previously and beating market expectations of 0.2%. On an annual basis, producer prices fell 1.7%, marking the fourth consecutive month of YoY decline. Meanwhile, the Eurozone Unemployment Rate eased to 6.3% in November from 6.4%.

ECB Vice President Luis de Guindos said on Thursday that the current level of interest rates is “appropriate,” adding that inflation is now at target, though uncertainty remains very high.

Looking ahead, Switzerland is set to release its latest Unemployment Rate on Friday. In the Eurozone, markets will monitor Retail Sales figures, alongside Germany’s Industrial Production and Trade Balance data.

SNB FAQs

What is the Swiss National Bank?

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

How does the Swiss National Bank interest-rate policy affect the Swiss Franc?

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.

Does the Swiss National Bank intervene in the forex market?

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

When does the Swiss National Bank Governing Council decide on monetary policy?

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.