Home Advanced Forex Education Forex Fundamental Analysis GBP/CHF Global Macro Analysis – Part 1 & 2

GBP/CHF Global Macro Analysis – Part 1 & 2

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Introduction

The global macro analysis of the GBP/CHF currency pair will involve analysing endogenous and exogenous factors. Endogenous factors drive the domestic GDP growth in the UK and Switzerland. Exogenous factors influence the exchange rate for the currency pair.

Ranking Scale

The analysis will rank the endogenous and exogenous factors on a scale from -10 to +10. The score for endogenous factors will be determined from a correlation analysis with the domestic GDP growth rate. If the score is negative, it means that the endogenous factor has led to the domestic currency depreciation. If positive, it has caused the appreciation of the domestic currency.

The exogenous analysis score is from a correlation analysis with the exchange rate for the GBP/CHF pair. When the score is negative, traders can expect the bearish trend for the pair. If positive, then the pair is expected to have a bullish trend.

Summary – GBP Endogenous Analysis

A -15 score implies that GBP has depreciated since the beginning of 2020.

Summary – CHF Endogenous Analysis

A score of 3 implies that CHF has partially appreciated since the beginning of this year.

Indicator Score Total State Comment
Switzerland Employment Rate -3 10 79.7% in Q3 2020 Slightly below the 80.4% recorded in Q1.
Switzerland Core Consumer Prices 4 10 100.82 points in November Inflation, as measured by the core consumer prices, rose by 0.28 points from January to November
Switzerland Manufacturing Production -2 10 4.7% decrease in Q3 2020 The YoY swiss manufacturing production is recovering
Switzerland Business Confidence 3 10 103.5 in November Swiss KOF Economic Barometer dropped in October and November. The majority of the consecutive drop was driven by private consumption
Switzerland Consumer Spending 5 10 Q3 spending was 91.929 billion CHF Q3 had the highest consumer spending compared to Q1 and Q2.
Switzerland Construction Output -2 10 A 0.4% drop in Q3 2020 Q3 output recovered from the 5% drop in Q2 but is still lower than the 3.1% growth in Q1
Switzerland Government Budget Value -2 10 An expected deficit of 2.2 billion CHF in 2020 Switzerland had a surplus of 8.1 billion CHF in 2019. The projected deficit is on account of aggressive government stimulus program and decreases in revenue due to COVID-19
TOTAL SCORE 3
  1. Switzerland Employment Rate

The Swiss employment rate measures the quarterly change in the percentage of the labour force that is employed. Changes in the number of people employed in the economy are a leading indicator of economic growth. When the economy is expanding, businesses create more job opportunities; hence, higher employment rate. Conversely, a shrinking economy leads to job cuts, which result in a lower employment rate.

In 2020 Q3, the Switzerland employment rate rose to 79.7% from the 6-year lows of 79.1%. Although the Q3 employment rate is lower than the 80.4% recorded in Q1, it shows that the Swiss economy is recovering from the economic shocks of COBID-19. The swiss employment rate scores -3.

  1. Switzerland Core Consumer Prices

Core consumer prices measure the rate of inflation by monitoring the price changes of only a select basket of goods and services. Consumer products with volatile prices are excluded. The rate of inflation is a leading indicator of economic growth. That’s because when inflation rises, it means domestic demand is on the rise, too, hence a higher GDP growth rate. Similarly, a decrease in the inflation rate means domestic demand is depressed, which may be followed by a contracting economy.

In November 2020, the swiss core consumer prices dropped to 100.82 points from 100.89 points in October. However, it is still higher than 100.54 points recorded in January. It has a score of 4.

  1. Switzerland Manufacturing Production

This measures the YoY change in the value of output from the swiss manufacturing sector. This sector plays a significant role in the Swiss economy. Therefore, growth in manufacturing production is accompanied by growth in the labour market and, consequently, the domestic economy’s expansion.

In Q3 of 2020, the YoY swiss manufacturing production dropped by 4.7%. That’s an improvement from the 9.6% drop in Q2. We assign a score of -2.

  1. Switzerland Business Confidence

The KOF Swiss Economic Institute compiles this index. It measures company managers’ optimism based on their perspective of the economy and the growth prospects of their businesses. The business that is surveyed are drawn from multiple sectors in the economy and contains 219 different variables.

In November 2020, the Swiss KOF Economic Barometer dropped to 103.5 from 106.3 in October. This marks the send consecutive month of a drop in the swiss business confidence. Notably, the drop in the index is primarily driven by the manufacturing sector and private consumption. Swiss business confidence has a score of 3.

  1. Switzerland Consumer Spending

This is the value of the total consumption by Swiss households. Domestic consumption is a primary driver of GDP growth. More so, it also an indicator of the performance in the labour market. With a higher rate of employment, disposable income increases, which increases consumer spending.

Swiss consumer spending increased to CHF 91.929 billion in the third quarter of 2020, which is the highest recorded compared to CHF 89.79 billion in Q1 and CHF 82.03 billion in Q2. It has a score of 5.

  1. Switzerland Construction Output

This indicator measures the percentage change in the value paid for construction work in Switzerland. The construction work includes building and engineering works done by public and private companies. Typically, when construction work increases, it is expected to be accompanied by an increase in the employment rate and economic growth.

In the third quarter of 2020, the YoY swiss construction output dropped by 0.4%. That is an improvement compared to the 5% drop in Q2 but still less than the 3.1% growth recorded in Q1. It has a score of -2.

  1. Switzerland General Government Budget Value

This represents the difference between the revenues received by the Swiss government and its expenditures. Government expenditure includes all transfer payments and purchases of goods and services. The general government budget value shows if the Swiss government has a surplus or a deficit. Too much deficit means that the economy is probably not responding to expansionary fiscal policies.

In 2019, the Swiss government had a budget surplus of CHF 8.097 billion. In 2020, the general government budget was expected to hit a deficit of CHF 2.2 billion. This deficit is primarily driven by a significant drop in revenue collection due to COVID-19. It has a score of -2.

In the very next article, you can find the Exogenous analysis of the GBP/CHF currency pair, so make sure to check that out. Cheers.

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