USD/CHF remains subdued around 0.7950 due to fading SNB’s further rate cuts
- USD/CHF falters as the Swiss Franc gains strength amid waning concerns over the SNB moving rates into negative territory.
- The US Dollar may encounter pressure as the likelihood of additional Fed rate cuts in upcoming meetings increases.
- According to the CME FedWatch Tool suggests pricing in a 94% probability of a Fed rate cut in October.
USD/CHF remains subdued for the third successive session, trading around 0.7950 during the Asian hours on Tuesday. The pair loses ground as the Swiss Franc (CHF) receives support from rising inflation expectations in Switzerland, which diminishes fears of the Swiss National Bank (SNB) pushing interest rates into a negative territory.
The USD/CHF pair further depreciates as the US Dollar could face challenges amid rising odds of further Federal Reserve (Fed) rate cuts in the upcoming meetings, along with ongoing government shutdown. The CME FedWatch Tool suggests that markets are now pricing in a 94% chance of a Fed rate cut in October and an 84% possibility of another reduction in December.
The US government shutdown has postponed the key economic data release, including September’s Nonfarm Payrolls report. US ADP Employment Change and Job Openings data indicate a softening labor market and strengthen expectations of an imminent rate cut.
The White House backed off US President Donald Trump’s claim on Monday that government employees were already being laid off due to the shutdown but cautioned that job losses could occur as the impasse appeared likely to extend into a seventh day.
Meanwhile, the Republican-led Senate rejected competing funding measures for federal agencies for the fifth time. Democratic leader Chuck Schumer also refuted Trump’s assertion that negotiations with Democrats were still taking place.
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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