USD/CHF holds losses below 0.8050, Fed’s Powell speech in focus
- USD/CHF softens near 0.8030 in Tuesday’s early European session.
- Economic uncertainty and concerns over the US-China trade war lift the Swiss Franc, a safe-haven currency.
- The Swiss September Producer and Import Prices data and Fed’s Powell speech will be the highlights later on Tuesday.
The USD/CHF pair loses ground to around 0.8030 during the early European session on Tuesday. The US Dollar (USD) softens against the Swiss Franc (CHF) amid economic uncertainty and a cautious mood. Traders will keep an eye on the Swiss Producer and Import Prices data for September, along with the Federal Reserve’s (Fed) Chair Jerome Powell speech later on Tuesday.
The ongoing US government shutdown raised concerns over the impact on the US economy, which could drag the Greenback lower against the CHF. The US federal shutdown has entered its third week with no resolution in sight. The Senate returns Tuesday and is expected to vote again on a House-passed measure to fund the government.
The US and China on Tuesday will begin charging additional port fees on ocean shipping companies that transport everything from holiday toys to crude oil, turning the high seas into a critical battlefield in the world's two biggest economies' trade war. The US is scheduled to start collecting fees on October 14. Fears of renewed trade tensions between the US and China could boost the safe-haven flows, benefiting the CHF.
The Swiss Producer and Import Prices data for September might offer some hints about inflation in Switzerland and the interest rate path. Barclays and Bloomberg Economics expect the Swiss National Bank (SNB) to lower borrowing costs by a quarter-point to -0.25% at the December meeting.
“The impact of a strong Swiss franc on domestic prices and the hit to growth of higher-than-expected US tariffs are key risks for the SNB,” said Jean Dalbard of Bloomberg Economics “We expect the Swiss central bank to cut rates in December if the currency remains strong,” added Dalbard.
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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