Swiss Franc receives support as US Dollar weakens on easing risk aversion
- USD/CHF declines as the US Dollar weakens due to reduced safe-haven demand.
- An Iran-Oman agreement on Strait of Hormuz shipping routes raised expectations for increased Middle Eastern energy flows.
- Swiss inflation unexpectedly dropped to 0.4% in July, frustrating the Swiss National Bank's forecast for a slight rise.
USD/CHF extends its losses for the third consecutive day, trading around 0.8060 during the Asian hours on Thursday. The pair depreciates as the US Dollar (USD) faces headwinds from declining safe-haven demand.
Market sentiment shifted following reports that Iran and Oman have reached an agreement on a shipping route through the Strait of Hormuz, boosting expectations for increased Middle Eastern energy flows. The joint Iran-Oman statement is currently in its final drafting stage. At the same time, the proposed route is expected to operate for two to four months; Tehran emphasized that the deal does not represent a complete reopening of the strategic waterway.
Dollar tone softens as US labour data seen as mildly negative for USD
Strategists at Scotiabank observe that recent US employment releases continue to point to a labour market that is “tight but not necessarily adding to inflation pressure at the moment”—a combination they describe as “a mild negative for the USD perhaps.” In their view, the absence of clear additional inflationary impulse from jobs data tempers support for the Dollar at the margin, reinforcing the softer tone that has emerged following the latest FOMC-driven selloff.
ADP data released on Wednesday revealed that US private-sector employment added just 44K jobs in July, down from 98K in June and missing the market consensus of 70K. Traders are now closely watching Thursday’s US Initial Jobless Claims and Friday’s Nonfarm Payrolls (NFP) report.
Daly flags fading tariff impact but warns on tech-driven inflation
Fed's Daly delivered a moderately cautious message, with an FXS Speechtracker score of 5.4/10, slightly softer relative to the historical average of 5.6/10. Daly highlighted that tariffs had a clear impact on inflation but sees some evidence that this effect is beginning to fade, while noting technology investment is currently adding upward pressure on prices. Daly emphasized that supply shocks, including the Middle East war, are seen as largely temporary for inflation, with longer-run expectations still well anchored but not to be taken for granted, and supported holding rates steady in July pending more data.
The FXS Fed Sentiment Index fell by 2.23 points to 138.69, signaling a modest pullback in perceived hawkishness following the speech. Despite the decline, the index remains firmly in hawkish territory above 100, indicating that markets still view the Fed as biased toward tighter policy even as the tone in the FXS Speechtracker edged slightly closer to neutral.
Swiss inflation dipped to a four-month low of 0.4% in July, down from 0.5% in June, catching the Swiss National Bank off guard, as it had anticipated a slight inflationary uptick after keeping its policy rate steady at 0%.
However, the SNB is expected to hold interest rates unchanged through the end of the year, viewing additional rate cuts as a backup plan rather than the main strategy, given the ongoing stability of Swiss banks.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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