Franc Dips against Euro and Pound on Inflation Undershoot
- Written by: Sam Coventry
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The Swiss Franc was softer against the Pound, Euro and other currencies following the release of domestic inflation figures, but risk-off sentiment will limit near-term losses.
Swiss inflation rose to a flat 0% month-on-month in August from -0.2% in July, but this was below the 0.1% growth that the market expected.
This meant that the country saw a 1.1% year-on-year rise in inflation, down from 1.3% and below expectations for 1.2%.
The inflation trend shows that the Swiss National Bank (SNB) might have to worry about deflation once more. This raises the prospect of further interest rate cuts, one of which could come as soon as September 26.
The Pound to Franc rose to a daily high of 1.1209, the Euro to Franc 0.9444, but losses were constrained by a cautious global investor sentiment.
Robert Howard, a Reuters market analyst, says a stronger Franc is helping to keep Swiss CPI below the 2% peak of the SNB target range.
If the SNB thinks it could benefit from a weaker currency, it will be more inclined to cut interest rates more aggressively. "Franc bears hope that Switzerland's softer than expected August CPI print spurs the Swiss National Bank to deliver a larger than predicted 50 basis point rate cut later this month, as this might deflate the CHF," says Howard.
CHF weakness is nevertheless limited by a risk-off sentiment in global markets, which plays into the Franc's reputation as being a go-to when stocks are under pressure.
Investor sentiment will remain coy ahead of the Friday release of U.S. non-farm payroll data, which could determine whether the Federal Reserve cuts interest rates by 25 basis points or 50bp later in September.
An undershoot in the data will raise the odds of a 50bp move which would boost stocks and undermine the Franc. However, a stronger-than-forecast outcome would have the opposite effect.
Rising U.S. treasury yields reveal investors are nervous of an above-consensus reading, which can play into CHF strength in the coming days.