Bleak Outlook for the Franc: Sinking due to Surging Appetite Risk?

The Swiss Franc, riding on similar trends taken by other major currencies, rose against the dollar midweek amidst fresh financial market jitters.  

Risk aversion caused by official bailouts and more write-offs from investment banks could hurt the USD/CHF exchange by as much as 200 points.  The grim picture of the Swiss economy continues to worsen as spiraling inflation exerts pressure on general consumption and public confidence.

Bearish Outlook

The Swiss Franc remains fundamentally bearish as predicted by analysts.  Overall Swiss retail sales failed to reach the 3.3% expected growth as it registered a measly 0.7% rise.  This was due to the rising cost of energy; diminishing the purchasing power of Swiss consumers.

Trade balance remained static and was pegged at a constant 2.37 billion as Swiss rising exports countered the decline of its imports.  Investor confidence fell to 79.6, according to latest reports of ZEW Survey of Business Confidence, due to the general European market slump further dampening Swiss economic outlook.

Hopes Rising Not for the Franc?

The overall U.S. and European market equity finished the week on an upswing mood.  The rebound was due to declining fears about the financial system because of increased M&A activity.  News of Lehman Brothers’ take over initiative also helped quash market jitters.

The struggling investment bank lost almost 80% of its actual value due to spreading rumors that it has become insolvent and could collapse.  More investors are pinning their hopes that the sale of the investment bank and the potential for solving the current problems of GSE could end the strain on the financial market and resolve the crisis.

The surge of risk appetite could fetter the performance of the Swiss Franc as investors funnel their cash from relatively stable currencies into higher risk assets.  Indicators show clearly that the impact of this capital migration will further stagger the Swiss economy driving it to deeper economic slide.

Continued Downward Outlook

A 0.7% drop in employment rate from last quarter’s 2.8% to 2.1% this quarter is expected to exert pressure on growth rates as global economic demands decline due to rocketing commodity prices.  The impact of rising inflation and global increase of commodity prices can be seen on UBS consumption index.  Local demand will surely experience a slump as the previous month’s indication of growth is considered by experts as an aberration only.

Short term economic outlook will also remain bleak as reflected in KOF key indicator expecting a general slide from .90 points to .83.  The continued weakness of the Swiss economic fundamentals and the increasing risk appetite of investors could weigh down the Franc further in the coming week of trading.  The slide will also be affected by especially by technical resistance seen for the USD/CHF.