Switzerland is a country that has always been more important to the world than what statistics say. The main reason for this is that the country is a hub for financial services of the world. This importance of Switzerland also means that the Swiss Franc and its forex rates also become significant in the forex market.
The Swiss Franc, denoted as CHF, has the distinction of being the sixth most trader currency in the forex market. It is characterised by a stable economy behind it which does not make any surprising moves. Even so, it is important to understand the fundamental factors that drive the forex rates of the CHF if you want to trade in it.
Interest rates have always been relevant to the currency of any nation. However, Switzerland does not set a particular interest rate. Instead, it sets a range as a target for the LIBOR rate which spans a quarter. Needless to say, if the interest rate range is increased then the forex rates of the CHF also go up and vice versa.
GDP or Gross Domestic Product is the assessment of the performance of a nation’s economy. Switzerland is the 19th strongest economy in the world with around 70 percent of its GDP being credited to investment, insurance, and banking industries. GDP has an impact on forex rates if it goes up or down. If there is GDP growth then the currency’s value increases and vice versa.
The two most important trade partners of Switzerland are the European Union and the United States of America. If the country’s trade balance is in the positive then it means that it is exporting more than importing. A positive trade balance also means improving forex rates for the relevant currency.
Consumer Price Index
The Consumer Price Index is a measure of the level of inflation in the country i.e. the purchasing power of the currency. If the CPI goes up then the purchasing power drops and the value of the currency drops. On the other hand, when CPI drops it means that the forex rates will appreciate. Switzerland always tries to keep inflation below 3 percent.
Monetary Policy Assessment
The prime mover of monetary policy in Switzerland is the Swiss National Bank which is responsible for everything ranging from interest rate modifications to setting other financial policies. Monetary policy assessment is information about policy considerations being made by the relevant individuals in positions of power.
These reports are usually studied by forex traders to determine the future direction that these individuals are planning to take and how it would affect the forex rates of the Swiss Franc.
Understanding the Swiss Economy
If you want to trade in CHF then it is important that you can project its forex rates, which is only possible if you understand the Swiss economy a little. Switzerland’s economy may be 19th in the world but it happens to be the 5th wealthiest country in the world on the per capita basis. Therefore, you should study the economy well before trading in CHF.
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