Swiss Franc Falls Further on UBS Data

The Swiss franc has fallen across the board following the UBS consumption data but the move in the GBP/CHF cross is noteworthy given the crucial resistance level it is testing currently.

British pound has been trading higher for the past few months thanks to the hawkish signals from the second largest European economy, but there seem to be more negatives from Switzerland to push the cross further higher in the coming months.

GBP/CHF rose to as high as 1.5415 on Wednesday, its highest since 23 July, when it touched a two-year high of 1.5435.

It means the cross is just 20 pips away from a new two-year high and what is even more striking is that another 55 pips will take it to the highest since mid-2011. All these show that the cross is in a crucial resistance zone. (See the chart below)

The Swiss franc has dropped to 1.2085 against the euro from 1.2074 at Tuesday's close, following the UBS data. However, it showed some strength against the US dollar as the easing of geopolitical tensions has weakened the greenback across the board.

Still, the franc is headed for its third straight month of losses against the dollar and the USD/CHF pair is holding near a one-year high of 0.9434 touched earlier this month.

On the broader scale, the Swiss unit is strong against the euro thanks to the ECB rate cuts and downbeat recovery outlook for the eurozone, but the SNB has managed to keep the EUR/CHF cross above the 1.20 mark for the past three years.

The UBS Data

The UBS consumption indicator slumped to 1.35 in August from the July reading of 1.67, data showed on 24 September. The decline was fuelled by all the sub-indicators, UBS said.

"The domestic sector, previously a pillar of the Swiss economy, has lost much of its momentum," the UBS statement showed.

The Swiss bank said that its economists assume that private consumption will play only a moderate role in driving Swiss GDP growth this year.

UBS has lowered this year's GDP growth forecasts from 2.1% to 1.3%. The forecast for 2015 is 1.6%.

The SNB View

The Swiss National Bank, Switzerland's central bank, on 18 September maintained its EUR/CHF target floor at 1.20 and left the target range for the three-month Libor unchanged at 0.0–0.25%. The bank also cut its growth and inflation projections.

"The SNB will therefore continue to enforce the minimum exchange rate with utmost determination," the bank said in its September policy statement.

"From mid-2015 onwards, inflation is set to be lower. This is mainly due to the deterioration in the global economic outlook and slower growth in Switzerland," the bank said.

The SNB cut the forecast for 2015 inflation to 0.2%, 0.1 percentage points lower than at the last monetary policy assessment.

The Swiss central bank expects that the global economic recovery will be weaker in the coming quarters than previously forecast. It added that the global economic recovery remains vulnerable to setbacks.