USD/CHF edges higher following better-than-expected Swiss PPI

The Swiss franc advanced on Friday against the greenback, after a report by the Swiss Federal Statistical Office revealed better-than expected PPI in November.

USD/CHF traded at 0.8911 at 12:44 GMT, gaining 0.21% on a daily basis. On December 11th the pair touched the lowest level since November 4th 2011. Support was likely to be received at December 12th low, 0.8848, while resistance was to be encountered at December 9th high, 0.8934.

On Friday, a report by the Swiss Federal Statistical office showed the Producer and Import Price Index declined slightly in November by 0.1%, while analysts forecast pointed a 0.2% decline. In September the index declined by 0.4%. On year-on year basis, the index declined 0.4%, less than analysts projections of 0.5% drop. In September the index decreased by 0.3%. The Producer and Import Price Index measures average changes in prices received by domestic producers for their output. The index can be seen as a leading indicator of consumer price inflation (CPI), which represents the majority of overall inflation. Usually an increase in PPI leads to an increase in CPI, which in turn leads to increased interest rates and local currency appreciation.

On Thursday, the Swiss National Bank (SNB) maintained its benchmark interest rate unchanged at 0.25%, in line with analysts’ expectations. The SNB kept its 2013 forecast for economic growth unchanged, saying it expects economic expansion of between 1.5% and 2% this year. For 2014, the central bank forecasts that the GDP will increase by about 2%.

“Given the vulnerable economic situation abroad, downside risks still prevail for Switzerland,” said Thomas Jordan, President of the Swiss National Bank, cited by Bloomberg.

The SNB policy of near-zero interest rates fueled mortgage lending and caused a real-estate boom. Family homes had gained 24% since 2008, while apartment prices had surged 27%.

In September, the SNB required Swiss banks to hold a capital buffer, which represents 15 of mortgage-related assets. The decision came after the SNB realized that mortgage lending increases at a faster pace than the nation’s economy. Analysts forecast that the capital buffer may soon be increased to 2.5%, if the trend doesn’t reverse.

“In an environment of persistently low interest rates, the danger of a further build-up of imbalances on mortgage and real estate markets remains considerable. For this reason, the SNB continues to monitor the situation very closely, and regularly assesses whether the countercyclical capital buffer should be adjusted.”, SNB reported, cited by Bloomberg.

Meanwhile, on Thursday the US Commerce Department reported that retail sales rose solidly in November as Americans purchased automobiles and a range of other goods. Retail sales rose by 0.7% last month, beating analysts’ projections for a 0.6% gain, while October’s reading received an upward revision to 0.6% from initially estimated at 0.4%. The upbeat general indicator was lifted by a 1.8% jump in sales at auto and parts dealers, which offset a 1.1% decline in fuel prices.

Retail sales less autos, which exclude the volatile automobile sales, rose by 0.4% from an upward revised 0.5% a month earlier, exceeding expectations for a 0.2% advance.

Core retail sales, which exclude automobiles, food services, gasoline and building materials and correspond more closely to the consumer spending component of GDP jumped by 0.5% after advancing 0.7% in October.

Elsewhere, having touched the highest level since October 2008 on Thursday, USD/JPY traded at 103.58 at 08:33 GMT, gaining 0.2% for the day. The pair headed for a seventh consecutive week of gains. Support was likely to be received at December 12th low, 102.47, while resistance was to be encountered at October 6th 2008 high, 104.65.