The Swiss franc strengthened for the second consecutive week to pick up 100+ pip against the greenback. The uncertainties surrounding the U.S. financial crisis and the Bush Administration’s $700B bailout plan has certainly lowered investors temperament for risk, and the appetite for high yielding securities may remain subdued if the Congress fails to act.
Fading Risk Sentiment To Spur Bullish Outlook For The Swiss Franc
Fundamental Outlook for Swiss Franc: Bearish
- Risk sentiment to Drive Price Action for the Swiss franc
- Swiss Leading Index Falls to Five Year low
The Swiss franc strengthened for the second consecutive week to pick up 100+ pip against the greenback. The uncertainties surrounding the U.S. financial crisis and the Bush Administration’s $700B bailout plan has certainly lowered investors temperament for risk, and the appetite for high yielding securities may remain subdued if the Congress fails to act. Furthermore, Washington Mutual emerged as the latest victim to the financial turmoil as the bank lost nearly $16.7B in deposits during September, and took an even bigger blow as S&P lowered their credit rating to CCC from BB- earlier this week. The ongoing instability in the financial sector suggests that the market is far from recovery, which would only enhance the appeal of the Swiss Franc’s safe haven status in the near-term.
On the economic front, the ECB’s rate decision scheduled for the following week could impact the Swiss franc as the central bank softens their hawkish rhetoric days ahead of the meeting. ECB Vice President Lucas Papademos warned that the economic slowdown in the Euro-Zone may last longer than the bank had initially expected as the financial turmoil leaves European banks more vulnerable to potential shocks and credit risks going forward. The comments suggests that the credit crunch is dragging on the global economy, and that the current turmoil may spill over into other financial markets across the globe. The dour outlook for the global financial market may only get worse if banks in Europe get hit by the financial crisis in the U.S., and would certainly increase the appeal of the low-yielding currency in the long run.
Looking ahead, the UBS consumption indicator will kick off the week on Tuesday, and will be followed by the SVME purchasing managers index on Wednesday. Meanwhile on Thursday, the consumer price index is anticipated to fall 0.1% in September, but the Swiss franc may turn a blind eye to the economic releases as fading risk sentiments continues to drive a bullish outlook for the low-yielding currency. - DS
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