Fundamental Forecast for Swiss Franc: Neutral

- KoF Swiss Leading Indicator Improves for Eleventh Month
- EUR/CHF Jumps on SNB Intervention
- Dollar Rally Reversed as Risk Appetite Overwhelm Rates, Growth

The Swiss Franc strengthened against the greenback to retrace the decline from the last full week of March, while the low-yielding currency lost ground against the euro for the first time in nearly a month on speculation the Swiss National Bank intervened in the currency market in an attempt to counter the recent appreciation in the exchange rate. The EUR/CHF slipped to 1.4143 on Thursday to mark the lowest level since the single-currency was introduced in 1999, but there was an immediate spike to 1.4409 before the exchange rate stabilized around 1.4325 ahead of the holiday weekend.

At the same time, SNB spokeswoman Margaret Critchlow declined to comment following the sharp spike in the EUR/CHF, and the central bank may continue to flood the market with francs going into the second-half of the year as it pledges to balance the risks for the economy. Meanwhile, SNB board member Jean-Pierre Danthine pledged the Governing Board will prevent “any excessive appreciation of the Swiss franc” a day earlier during an interview with Radio Suisse Romande on March 31, and said that the central bank has “the means to achieve this objective, without dispute” as policy makers aim to encourage a sustainable recovery. However, market participants continue to question the effectiveness of the extraordinary measures taken on the SNB as the exchange rate continues to push into uncharted territory, and the central bank is likely to maintain a watchful eye on the franc as the ongoing turmoil in the Euro-Zone spurs increased demands for the safe-haven currency.

Nevertheless, the economic docket for the following week is expected to reinforce an enhanced outlook for the economy as market participants forecast consumer prices to expand at an annual pace of 1.4% in March, while the unemployment rate is expected to hold steady at a seasonally adjusted 4.1% for the third consecutive month. As the outlook for growth and inflation improves, the SNB may look to scale back its open market sales of the Swiss franc as the rebound in economic activity gathers pace. But at the same time, increased demands for the low-yielding currency may lead the central bank to maintain a dovish outlook for future policy as the board aspires to curb the risks for deflation.

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