Switzerland is a small country in Europe. It has a population of more than 8 million people and a GDP of almost $700 billion. The country derives most of its income from industrial exports. The main export items are machinery, watches, and chemicals. Its biggest trading partners are Germany, United States, India, and Hong Kong. Its most well-known companies are UBS, Rolex, Nestle, ABB, and Novartis among others. The country is well-known for its neutrality on global issues and for its financial sector. As a result of its independence, it has avoided joining the European Union. Instead, the country does trade with the bloc using around 100 secondary agreements. In recent years, the country has attempted to create a meaningful deal with Europe.
Since the country depends mostly on exports, the stability of the Swiss Franc is of great importance to the policymakers. In 2015, the SNB suddenly removed a peg that was there between the euro and the Franc. In recent months, the SNB has complained that the Franc is indeed overvalued. This statement allows the central bank to put in place measures of devaluing the currency, which potentially can increase the export industry.
However, it will be difficult for the SNB to devalue the currency again. This is because its base lending rates is still in the negative. As such, the bank does not have any potential tool in place to lower the currency. At the current interest rates, the Fed can easily devalue the dollar by lowering rates and even taking them to the negative territory.
In recent months, data from Switzerland has been relatively soft. The trade surplus has declined from more than $4.7 billion in November last year to $3.12 billion in February this year. As shown below, the economy has also been growing at a significantly slower rate.
Today, the country will release the unemployment rate numbers. In all measures, the country has remained in full-employment for years. The unemployment rate has declined from 3.5% in May 2016 to a low of 2.4% in February.
The USD/CHF pair has remained closer to the parity level in the past few days. This is as investors ponder on the next move for the Swiss National Bank. On the chart below, this price is along the 21-day and 42-day moving averages, with the Relative Strength Index (RSI) moving in an upward trend. The pair is likely remain within these levels as traders wait for the next actions on global trade.