EUR/CHF holds firm as Swiss retail sales beat forecasts, Eurozone PMI weakens

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The Euro (EUR) pares some of its early gains against the Swiss Franc (CHF) on Monday as traders digest stronger-than-expected Swiss Real Retail Sales alongside softer Eurozone manufacturing signals. At the time of writing, EUR/CHF is trading around 0.9324, easing from a daily high of 0.9338.

EUR/CHF holds firm on Monday as traders react to stronger Swiss data and softer Eurozone manufacturing signals.
Eurozone Manufacturing PMI slips to 49.6, a five-month low, with the Output Index falling to its weakest level in nine months.
Focus shifts to Eurozone Core HICP on Tuesday and Swiss CPI on Wednesday.

Swiss Real Retail Sales rose 2.7% YoY in October, sharply above the 1.2% consensus, signalling a more resilient consumer sector despite the broader slowdown in Switzerland’s economy. The prior month was also revised higher to 1.8% from 1.5%, adding to the upside surprise.

The latest HCOB Eurozone Manufacturing Purchasing Managers Index (PMI) showed that factory activity weakened again in November. The headline index slipped to 49.6, down from 50.0 in October and slightly below the 49.7 forecast, which puts the reading at a 5-month low. The Output Index also softened to 50.4, its weakest level in nine months and down from 51.0 in October.

A deeper look into the report revealed a mixed picture. Spain’s PMI fell to 51.5 from 52.1 in October, a two-month low, though it stayed in expansion. Italy’s PMI rose to 50.6 from 49.9, reaching a 32-month high and showing one of the strongest improvements in the bloc. Germany’s PMI fell to a nine-month low at 48.2, down from the flash estimate of 48.4.

Looking ahead, traders will focus on a fresh round of inflation and activity data. The Eurozone Core Harmonized Index of Consumer Prices (HICP) preliminary reading is due on Tuesday, while Switzerland will publish its Consumer Price Index (CPI) on Wednesday. The Eurozone calendar also features the HCOB Composite PMI, Services PMI, and the Producer Price Index (PPI) on Wednesday.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.