The Swiss franc rallied in early trading on Tuesday following the Swiss government lifted its economic growth forecast for the next year as it expects the marked revival in domestic consumption and construction investment to soften a sharp slowdown in exports.
In its quarterly economic trends and forecasts, the State Secretariat for Economic Affairs, or SECO, raised its gross domestic product forecast for the next year to 1.5% from the 1.2% estimated in September.
SECO’s expert group assessed that though an expected slackening of exports may result in a sharp slowdown of the economy in 2011, the relative resilience of the domestic market so far and robust construction spending are expected to limit the extent of the slowdown.
At the same time, the group maintains its outlook for this year, expecting GDP growth of 2.7%. In 2012, a gradual improvement in global trading conditions will help the economy gain some momentum, with the rate of expansion accelerating to 1.9%.
Swiss gross domestic product rose 0.7% sequentially in the third quarter following a downwardly revised 0.8% growth in the second quarter.
Traders are also keenly waiting for the Swiss National Bank rate decision on Thursday. The Central Bank is widely expected to hold its target range for the three-month Libor for Swiss franc deposits at 0.0% to 0.75% for a seventh consecutive quarter. SNB’s target rate has been at 0.25% since March 2009.
Extending its 6-day winning streak, the Swiss franc touched above the 0.96 level against the US dollar around 6:45 am ET for the first time since November 9. On the upside, 0.9540 is seen as the next likely resistance level for the franc.
The Swiss franc soared up to more than a 7-week high of 1.5242 against the pound by this time and the pair leveled off shortly. The pound-franc pair is presently worth 1.5250 with 1.52 seen as the next likely target level.
The alpine unit reached as high as 1.2934 against the euro before holding steady around 6:20 am ET. If the Swiss currency strengthens further, 1.2860 is seen as the next likely target level. Currently, the euro-franc pair is trading at 1.2950.
A rebound in eurozone industrial production in October and an improved German investor confidence in December did little impact on euro buying today.
Against the yen, the Swiss franc moved broadly range-bound and traded in between 86.50 and 86.10. The franc-yen pair is presently trading at 86.37.
Looking ahead, the U.S. retail sales and PPI – both for November, business inventories for October are slated for release in the New York morning.
The Federal Open Market Committee is scheduled to announce its decision on interest rates at 2:15 pm ET.
While the Fed is unlikely to announce a shift in policy or any changes to its recently announced second round of $600 billion asset-buying program, the central bank is likely to highlight the ongoing risks to the world’s largest economy.