The Swiss Franc fell against the Euro (CHF/EUR) and British Pound (CHF/GBP) on Wednesday following the publication of Switzerland’s ZEW Expectations survey, which dropped from -10.8 to -73.0 in February.
The shockingly steep 62.2 point decline was the most pronounced in the history of the index.
The measure, which tracks the expectations of industry experts regarding Switzerland’s economic development over the next six months, suffered as a result of the Swiss National Bank’s (SNB) decision to scrap its long-standing 1.20 cap with the Euro earlier in the year.
ZEW said of the result; ‘While analysts who answered the survey prior to the SNB’s media release would have pushed the ZEW-CS Indicator back into positive territory, the analysts who responded after the SNB’s media release were much more pessimistic.’
‘As a result, economic expectations for Switzerland did not recover but decreased further. The negative indicator reading in January is heavily influenced by the strong reactions in the aftermath of the SNB’s decision and currently difficult to interpret. When the shaken Swiss markets get back to normal, we will be able to evaluate in how far the current pessimistic assessments will materialise.’
In the hours following the report’s publication, the Swiss Franc to Pound Sterling (CHF/GBP) exchange rate fell by almost 1% to trade in the region of 0.6882.
The Swiss Franc to Euro exchange rate shed 0.2%, taking the CHF/EUR pairing to 0.9338.
The downtrend in the CHF/GBP pairing was also due to the UK’s better-than-forecast employment figures for the three-months through December.
However, while the Franc did soften today, the SNB remains concerned that the currency is ‘significantly overvalued’ and speculation that the central bank may intervene to drive the currency lower is mounting.
SNB Chairman Thomas Jordon recently asserted; ‘Our currency is still trading at a significantly overvalued level. The SNB will continue to take the exchange rate situation into consideration when formulating its monetary policy. It will therefore remain active in the foreign exchange market, should this prove necessary in order to influence monetary conditions.’
While the Franc has pared some of the gains accrued in the wake of the SNB’s surprising decision to remove its peg with the Euro, the currency is still trading 10% higher against the common currency than it was before the announcement.
The Swiss Franc could experience additional volatility tomorrow as Switzerland releases its trade balance figures for January.