USD/CHF ticks up from 0.7950 amid risks of a US government shutdown
- The US Dollar attempts to find support at 0.7950 after retreating from levels beyond 0.8000 last week.
- Market concerns of a US government shutdown keep the US Dollar under pressure on Monday.
- Later this week, Swiss Retail sales and CPI data might provide fundamental guidance for the CHF.
The US Dollar is trimming some losses during Monday’s European session. The pair is trading right above 0.7965 after hitting daily lows at 0.7950, yet upside attempts are limited with the possibility of a US government shutdown looming large.
US President Trump is expected to meet bipartisan congressional leaders in a last-minute attempt to avert the government’s closure later today, but the chances of an agreement are remote.
CNN reported over the weekend that Democratic leaders are demanding an extension to the enhanced Affordable Care Act premium subsidies, along with other demands that Trump considered “totally unreasonable”, to sign a deal that would keep the government going through the 2026 fiscal year, which starts next Wednesday.
Earlier in the day, Cleveland Fed President Beth Hammack struck a hawkish note and defended the bank’s need to maintain a restrictive monetary policy as, she said, risks to inflation remain high, while the labour market is “broadly in balance”.
In Switzerland, the highlights this week will be the Retail Sales figures on Wednesday and the August Consumer Prices Index (CPI) reading, due on Thursday. These releases follow the SNB's decision to keep rates at 0% and may provide some clues about the central bank’s near-term path.
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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