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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