Swiss franc jumps as Swiss GDP improves

The Swiss franc has posted strong gains on Thursday after Switzerland’s GDP was hotter than expected. USD/CHF is down 0.83% on the day and is trading at 0.9056 early in the North American session. In the US, second-estimate GDP grew 1.3% in the first quarter, below the first-estimate of 1.6% and much weaker than the 3.4% gain in Q4 2023.

Switzerland’s economy expands by 0.5%

Switzerland’s GDP grew by 0.5% q/q in the first quarter, after a 0.3% gain in each of the prior two quarters and higher than the market estimate of 0.3%. This was the fastest pace of growth since the second quarter of 2022 and was driven by the services and retail sectors. On an annualized basis, GDP grew by 0.6%, up from a revised gain of 0.5% in the fourth quarter of 2023 and in line with market expectations.

The US dollar has had its way with the Swiss franc this year, gaining an impressive 7.9%. The sharp depreciation of the Swiss franc has not been an unwelcome development for the Swiss National Bank, as it makes Swiss exports more competitive on world markets. The Swiss franc was at high levels late last year and this helped keep inflation in check at a time when the central bank was concerned that inflation might breach the 0% to 2% target.

Has the Swiss franc’s sharp fall this year become too much of a good thing? Swiss National Bank Thomas Jordan said earlier today that the weak franc is the most likely source of Swiss inflation and the SNB could counteract the currency’s downturn by “selling foreign exchange”. This is not the kind of announcement we would see from other central bankers but the SNB has not shied away from currency intervention as a tool to achieve its goals and keep inflation at a suitable level.

The SNB lowered interest rates in March, the first major central bank to do so. The SNB meets next on June 20th and today’s stronger-than-expected GDP release will support the central bank lowering rates at the June meeting.

USD/CHF Technical

• USD/CHF pushed below support at 0.9128 and 0.9098 and is putting pressure on support at 0.9048
• 0.9178 is the next resistance line

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