The euro remained steady against the Swiss franc (CHF) on Tuesday, as traders digest a heavy slate of economic data in the euro zone. At the time of writing, EUR/CHF is trading at 0.9289, snapping a two-day losing streak.
The Composite Purchasing Managers’ Index (HCOB) fell to 51.5 in December from 51.9 in the previous month, indicating that private sector activity continued to expand but at a slower pace. The services PMI also fell to 52.4 from 52.6.
Data from Germany added to the mixed picture. The HCOB composite PMI fell to 51.3 in December from 51.5. In contrast, the services PMI rose to 52.7 from 52.6 in the bloc’s largest economy, keeping services activity in expansion territory.
Spain’s services sector showed stronger momentum at the end of the year. The HCOB services sector PMI rose to 57.1 in December from 55.6.
Elsewhere, services activity in Italy lost momentum, with the HCOB services PMI falling to 51.5 from 55. In France, business conditions remained fragile. The HCOB Composite PMI fell to 50.0 from 50.1, while the Services PMI fell to 50.1 from 50.2.
Traders are now looking ahead to German inflation data due later in the day, followed by preliminary Eurozone inflation figures on Wednesday, which could provide fresh insight into inflation dynamics across the bloc and help shape expectations about the path of the ECB’s monetary policy.
Economists expect inflation pressures to remain broadly stable. Preliminary figures are expected to show euro zone core CPI rose 2.4% year-on-year in December, unchanged from the previous reading, while headline CPI inflation is expected to ease slightly to 2.0% from 2.1%.
On the Swiss side, local data painted a weaker picture of business activity. The SVME PMI fell sharply to 45.8 in December from 49.7, pushing into contraction territory deeper and underscoring continued weakness in Switzerland’s manufacturing sector.
Investors will also turn their attention to Swiss inflation data due on Thursday. Economists expect the Consumer Price Index (CPI) to fall 0.1% month-on-month in December after a 0.2% decline previously, while annual inflation is expected to rise slightly to 0.1% from 0.0%.
Any downside surprise could reinforce concerns about continued low inflation and increase pressure on the Swiss National Bank to consider a return to negative interest rates.
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data for the Euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
