Swiss Franc Weakens As Manufacturing Slumps, Capped by SNB Intervention

The  Swiss franc is weakening on Tuesday as the latest manufacturing figures highlighted an industry that is in a sharp decline. The franc’s slide was exacerbated by the central bank’s foreign exchange interventions to prevent currency appreciation. With Switzerland reopening in the aftermath of the coronavirus pandemic, could the economy rebound in the second half of 2020 and elevate the franc even more?

The  procure.ch manufacturing purchasing managers’ index (PMI) declined to  40.7 in  April, down from 43.7 in  the  previous month – anything below 50 indicates a  contraction. But the  PMI reading beat the  median estimate of  34.6. That said, there were sharp contractions in  output, new orders, employment, stocks purchased, and  prices. These were the  largest declines since May 2009.
Claude Maurer, an  economist at  Credit Suisse, said in  a  statement:

The  situation is going to  be difficult for  many companies and  we are forecasting a  recession for  this year. The  big problem for  companies is delivery times. The  suppliers are not operating fully, transport is difficult and  border controls are more complicated.

We think the  readings will improve in  the  next few months as  the  restrictions are relaxed, but it’s from a  very low base. There will be a  recovery, but I  don’t think we will be going back to  the  good old days.

Last week, the  KOF Economic Institute warned that the  economy is in  a  crisis, and  the  export-led economy could crater by  6.7% this year. If accurate, it would be the  worst recession since 1975.
According to  the  Swiss Federal Statistical Office, the  consumer price index (CPI) tumbled 0.4% in  April following two consecutive months of  0.1% gains. The  CPI slumped at  an  annualized rate of  1.1%.
While some data may be better than expected and  the  nation is reopening, consumer confidence collapsed to  -39.30 in  the  second quarter of  2020. This is down from -7 points in  the  first quarter.
On  Monday, the  Swiss National Bank (SNB) maintained its string of  currency interventions as  policymakers try to  place a  ceiling on  the  safe-haven asset’s surge. New SNB data reveals that total sight deposits climbed by  roughly $20 billion to  $688.63 billion in  one week.
Instead of  slashing interest rates deeper into subzero territory, analysts anticipate greater foreign exchange interventions as  the  central bank’s primary tool to  fight currency appreciation.
The  USD/CHF currency pair rose 0.83% to  0.9731, from an  opening of  0.9649, at  17:16 GMT on  Tuesday. The  EUR/CHF advanced 0.2% to  1.0547, from an  opening of  1.0528.

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