EUR/CHF steadies after softer PMIs, inflation data in focus
- EUR/CHF steadies as markets digest a heavy batch of Eurozone PMI data.
- Eurozone business activity remains in expansion, but momentum slows across major economies.
- Focus shifts to German and Eurozone inflation data, with Swiss CPI due later this week.
The Euro (EUR) holds firm against the Swiss Franc (CHF) on Tuesday as traders digest a heavy slate of Eurozone economic data. At the time of writing, EUR/CHF trades around 0.9289, snapping a two-day losing streak.
The HCOB Composite Purchasing Managers Index (PMI) edged down to 51.5 in December from 51.9 in the previous month, signalling that private-sector activity continued to expand but at a slower pace. The Services PMI also eased to 52.4 from 52.6.
Data from Germany added to the mixed picture. The HCOB Composite PMI slipped to 51.3 in December from 51.5. In contrast, the Services PMI ticked up to 52.7 from 52.6 in the bloc’s largest economy, keeping services activity in expansion territory.
Spain’s services sector showed stronger momentum at the end of the year. The HCOB Services PMI rose to 57.1 in December from 55.6.
Elsewhere, Italy’s services activity lost traction, with the HCOB Services PMI slipping to 51.5 from 55. In France, business conditions remained fragile. The HCOB Composite PMI fell to 50.0 from 50.1, while the Services PMI eased to 50.1 from 50.2.
Traders now look ahead to German inflation data due later in the day, followed by preliminary Eurozone inflation figures on Wednesday, which could provide fresh insight into inflation dynamics across the bloc and help shape expectations around the European Central Bank’s (ECB) monetary policy path.
Economists expect inflation pressures to remain broadly steady. Preliminary figures are forecast to show Eurozone Core HICP rising 2.4%YoY in December, unchanged from the previous reading, while headline HICP inflation is seen easing slightly to 2.0% from 2.1%.
On the Swiss side, domestic data painted a weaker picture for business activity. The SVME Purchasing Managers’ Index fell sharply to 45.8 in December from 49.7, pushing deeper into contraction territory and underscoring ongoing softness in Switzerland’s manufacturing sector.
Investors will also turn their attention to Swiss inflation data due on Thursday. Economists expect the Consumer Price Index (CPI) to fall 0.1% MoM in December after a 0.2% decline previously, while annual inflation is forecast to tick up slightly to 0.1% from 0.0%.
Any downside surprise could reinforce concerns about persistently low inflation and increase pressure on the Swiss National Bank (SNB) to consider a return to negative interest rates.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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