The Euro to Swiss Franc (EUR/CHF) exchange rate is sliding towards its lowest level in 26-months as disappointing inflation data out of France and Germany weighed and as the Swiss National Bank chose to leave interest rates unchanged and reiterated its intention to defend the 1.20 Euro cap.
According to Destatis, the annual Inflation in the Eurozone’s largest economy, Germany, was confirmed at 0.6% in November, the lowest figure recorded since February 2010.
The figure marked a 0.2% slide from the preceding figure of 0.8%.
The sharp fall in oil prices and cheaper food items had contributed to Novembers low inflation figure.
“A lower rate of price increase than in November 2014 was last measured in February 2010, when it stood at 0.5 percent,” Destatis said.
Inflation data out of France also increased concerns that deflation is taking root in the Eurozone. A report produced by statistics agency Insee showed that consumer prices in the Eurozone’s second largest economy declined more than forecast in November.
The French consumer price index fell by -0.2% and was just 0.3% higher on an annual basis. Economists had been forecasting for a 0.1% monthly decline and a yearly rise of 0.4%.
Also weighing upon the single currency was news that the second round of long-term loans issued by the European Central Bank came in at the low end of economist expectations.
The softer than expected figure increases pressure on the ECB to introduce other methods to encourage growth and tackle low inflation.
The Swiss Franc strengthened against the Euro and other major peers after the SNB left interest rates on hold at 0% and raised its growth forecasts for 2014.
The central bank now expects the Swiss economy to grow by 1.5% to 2% this year and see economic growth of around 2% in 2015.
The bank also reiterated its pledge to defend the exchange rate floor against the euro with the “utmost determination”. It is prepared to buy foreign currency in “unlimited quantities” for this purpose.
‘With interest rates at zero, the minimum exchange rate is the key instrument to avoid an undesirable tightening of monetary conditions. This is especially important at the moment, as upward pressure on the Swiss Franc has intensified once again,’ said SNB Chairman Thomas Jordan.
Against the Pound the Euro managed to make gains as the UK currency was weighed upon by a report, which showed that UK house price growth slowed for a sixth month in November.
Against the US Dollar the Euro was softer as the ‘Greenback’ rallied from a broad selloff as demand for safer haven assets improved on concerns that the global economy is softening and the diverging policies of the Federal Reserve and other global central banks.
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