FTSE Switzerland Index (WICHE) News

CHF_USD Currency Outlook

SNB faces tough decision

The Swiss economic indicators have remained generally firm with the KOF leading index holding close to the 2.00 level in August while GDP growth was 2.8% in the year to the second quarter, supported by robust growth in exports. The latest inflation data recorded a slowdown in the annual inflation rate to 0.4% in the year to August from 0.4% which will ease pressure for higher interest rates. The credit-related stresses will have some negative impact on growth while the firmer Swiss currency will also curb inflation. The National Bank will face a difficult policy decision this month as the bank will still be concerned over the medium-term inflation prospects, and there will not be another scheduled meeting until December. Even if the central bank does not increase interest rates, the reduced expectations for global interest rates will provide support to the Swiss currency. Market interest in global carry trades will remain much lower in the short term, especially while credit-related stresses persist and this will provide important Swiss franc support. There is also likely to be an underlying de-leveraging of risk which will underpin the currency. Overall, the franc should continue to extend its recovery against the Euro and the US currency is unlikely to make strong headway against the dollar even with near-term support realistic close to the 1.18 level.

Risk factors:

* Increased risk aversion could propel the franc sharply higher.
* Further deterioration in US dollar confidence would support the
franc.
* A major banking failure would support the Swiss currency.
* Easing credit-related stresses would reduce near-term franc
support.

Forecasts:
Currency Spot(11/09) 1-month_forecast 3-month_forecast 6-month forecast
US$/CHF 1.1850 1.1880 1.2110 1.1760

Source: www.investica.co.uk