Without any economic data in the headwind of the Swiss National Bank Policy meeting last Thursday, the swissie traded mostly within a 50 point band before being struck with heavy volatility from US data and the decision to raise the libor rate another quarter to 1.50 percent. This week has a few more fundamental releases to help guide swissie trading. On Monday, first quarter industrial production is expected to fall 3.8 percent after a strong 6.9 percent rise in the fourth quarter of 2005. Despite the drop, the year-on-year factory activity figure is expected to have risen 7 percent as the expanding economy fuels consumer and business spending.
The next release is not until Thursday when Mays trade surplus is expected to print an expanded SFr 1 billion figure. Exports have been consistently strong over the first part of this year and global demand looks to have continued growing during May. Friday, producer and import prices will be released. Prices are expected to have risen 0.2 percent during May, less than the 0.8 percent rise seen in April. The annual gain, however, is expected to be 2.4 percent. The SNB will continue to watch inflationary figures closely to monitor the effects of its monetary tightening cycle. If the reading comes in as expected, the SNB will have even more reason to continue with the hikes as planned as prices are still rising faster than is comfortable for policy makers.
Last week clean slate leading up until the long awaited SNB 3 month Libor target rate announcement on Thursday. As expected, policy makers raised the rate by 25 basis points to a range of 1 to 2 percent the third rate hike in 6 months. This along with hawkish comments by policy makers caused a 70 point gain for the swissie. In statements after the decision both Philipp Hildebrand, an SNB governing board member, and Jean-Pierre Roth, the SNB chairman, detailed that further rate hikes will be required. Hildebrand, in an interview, specifically stated: We feel that the policy stance today is still expansionary and so further normalisation is required. Both noted that the economy is continuing to expand at a very healthy pace and there are plenty of economic stimuli that will allow growth to be sustained despite the rate increases. The SNB also revised its 2006 growth forcast to 2.5 pecent at the meeting from a 2 percent forcast in March, as domestic and export demand continue to predict strength. After a week of ups and downs the USD/CHF pair ended up at 1.2314, only slightly lower than where it started.
