Switzerland’s Producer and Import Prices are set fall -5.4% in the year to June, the steepest decline in over 22 years. The metric foreshadows continued downward pressure on consumer prices as lower wholesale costs are reflected in the final price tag after CPI printed in negative territory for the fourth consecutive month in June. Strictly speaking, deflation implies an appreciation of the Franc, with falling prices boosting the currency’s purchasing power. Perversely, this means that the Swiss unit could actually see near-term buying interest following lower PPI figures. That said, the net effect is difficult to gauge considering the Swiss National Bank has explicitly committed to “take firm action to prevent an appreciation of the Swiss franc” to keep prices anchored. It is much easier for a central bank to drive the domestic currency lower than to support its value against speculative assault because it can simply print more of it, suggesting any upside is likely to be short-lived.

On balance, price action is likely to fall in with trends in risk sentiment. US Dollar saw buying interest overnight as Asian stock exchanges tumbled close to 2% on average, boosting demand for the safety-linked currency. The same dynamic is set to continue in European hours with equity index futures slipping deeper into negative territory.

Tags: CPI, forex, Inflation, interest rates, intervention, PPI, Producer Prices, risk aversion, stocks, Swiss National Bank, switzerland

This entry was posted on Monday, July 13th, 2009 at 2:23 am and is filed under Currency Trading, Economic Indicators, Economy, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.