GBP/CHF Falls despite Upbeat UK Construction Data, Swiss Manufacturing Improves

June 3, 2015 - Written by James Fuller

STORY LINK GBP/CHF Falls despite Upbeat UK Construction Data, Swiss Manufacturing Improves

Franc Advances on Pound

The Pound slipped against the Franc on Tuesday despite upbeat UK construction data emerging. The UK’s May Construction PMI registered growth from 54.2 to 55.9, rather than residing at 55.0 as expected.

The Markit report read: ‘UK construction companies recorded a slight rebound in output growth during May, but this only partially reversed the loss of momentum seen in April ahead of the general election. Looking ahead, business confidence across the construction sector picked up sharply over the month, with the degree of positive sentiment the highest since February 2006. According to survey respondents, this was driven by signs of a post-election bounce in clients’ willingness to spend, which in turn supported a further sharp upturn in employment levels.’

Meanwhile, the Swiss economy registered some unexpected levels of improvement in the manufacturing sector in May. The latest manufacturing Purchasing Managers Index came in at 49.4 in May from April’s 47.9 and rose above estimates of 47.8. The ecostat showed the nation’s manufacturing sector was nearly in growth territory; any figure above the 50.0 benchmark denotes growth, whereas below signals contraction.

The report stated: ‘Industrial momentum appears to have only marginally slowed.’

SNB Says Further Franc Declines are Likely

However, the Swiss Franc may be increasing in popularity as the Greece situation continues, but the Swiss National Bank has suggested that the exchange rate is overvalued.

SNB Chairman Thomas Jordan stated: ‘The Franc is significantly overvalued and should therefore weaken over time. In addition, we have emphasised we will become active in foreign exchange markets is required.’

The Franc exchange rate shot up in popularity back in January when the SNB removed the tie that pegged the Franc to the Euro. Now, the central bank uses negative interest rates and a fee to deposit any large sum of cash with the central bank in order to control the Franc and help balance the economy. While this week is relatively quiet for the Franc by way of domestic data, last week saw some influential ecostats released. The UBS Swiss Consumption Indicator slipped from a negatively revised 1.34 to 1.25 in April, while the same month registered a rise in Switzerland’s trade surplus, from a downwardly adjusted 2.50B to 2.86B. Meanwhile, Switzerland’s GDP shrank rather dramatically from 1.9% to 1.1% in the first quarter on the year. Economists had expected a smaller drop to only 1.6%.

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TAGS: Swiss Franc Forecasts