Market Overview

Swiss Franc Loses Ground Against U.S. Dollar

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The Swiss franc lost some ground in Thursday's early trading against the U.S. dollar. At around 6 am GMT, the greenback rose 0.31% against the franc to 0.8419.

The Swiss currency is often seen as a safe haven for investors. In times of global uncertainties and risks, investors rush to the safety of the franc and gold. Both safe havens are losing ground today, however, as the price of gold fell 0.25% to 1,547.35.

The Swiss economy has been very strong recently, especially compared to other developed nations. The Swiss economy is export-driven, however, and some traders might fear that the strong franc, which is trading near record heights for some time now, might start to take its toll on the economy.

These fears might be alleviated by the Swiss trade balance data published today. The Swiss trade surplus increased from 1.44 billion CHF in April to 3.31 billion CHF in May. Most analysts had predicted the Swiss trade surplus to widen modestly to 1.79 billion CHF.

The U.S. dollar seems to have recovered from yesterday's downgrade of the U.S. growth by the Fed, which now predicts the U.S. economy will grow by 2.7%-2.9%, down from its previous estimate of 3.1%-3.3%.

Slow growth is not the only problem facing the U.S. economy, however, as it becomes increasingly uncertain if the government will be able to persuade the U.S. lawmakers to raise the debt ceiling. In case the opposition Republicans, who control the House of Representatives, decide to block the government's attempt, the U.S. government will be forced to shut down as early as August.

The franc is retreating against the British pound as well, as the pound added 0.14% to its value and stands around 1.3506. The recent performance of the British economy has not been stellar, to say the least. In addition, there seems to be a shift in the power balance between doves and hawks in the Bank of England's policy setting committee. Minutes from the last meeting showed that the newest member of the BoE's committee, Ben Broadbent, voted for leaving the interest rates unchanged. His predecessor, Andrew Sentance, however, was more hawkish and had voted to raise the interest rates. The new composition of the BoE's policy setting committee makes it less likely the BoE will start raising its interest rates any time soon. As a result, some traders might think that the pound's gains are only temporary.

The franc is still too strong for the euro, however, as the European currency has fallen 0.07% to 1.2033. In spite of surviving the confidence vote, some analysts are fearful the Greek prime minister will not be able to push the new round of austerity cuts. Since these cuts were set as a precondition by the EU for the next tranche of the EU/IMF loan, the failure to vote in these reforms will effectively force Greece to proclaim a default on its debt. Needless to say, the effects of a potential Greek default on the euro will be devastating, as traders will quickly turn their attention to the debt problems of Portugal and Ireland.

Many traders believe the global recovery is still on shaky ground. The U.S. growth has recently been downgraded, the Eurozone is fighting, it seems, a never-ending debt battle, and the Japanese economy has still not recovered from the earthquake/tsunami disaster. These factors should persuade some traders that the global economy is marred with uncertainty and that the Swiss currency is the best place to hide from the global risks. These traders will be interested in the CurrencyShares Swiss Franc Trust ETF (NYSE: FXF).

Other traders might think that the Swiss currency has been trading too high and will soon start to hurt the performance of the Swiss economy. At the same time, traders might be hopeful that the Eurozone and the U.S. will be able to resolve their debt problems soon, providing a lot of tailwind for their currencies. Traders who find appeal in this scenario will be interested in the ETFS Short Swiss Franc Long US Dollar ETC ETF (SCHF).

Posted-In: News Currency ETFs Forex Economics ETFs

 

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