USD/CHF stands firm near 0.8000; await break through 50-day SMA ahead of FOMC minutes
- USD/CHF attracts buyers for the fourth straight day amid a combination of supporting factors.
- A fall in Swiss GDP undermines the CHF and supports the pair amid the recent USD move up.
- Economic woes cap the USD and the major amid softer risk tone and ahead of FOMC minutes.
The USD/CHF pair prolongs its recent recovery from the 0.7880-0.7875 region, or a nearly one-month low touched last week, for the fourth straight day and climbs to an over one-week high during the Asian session on Wednesday. Spot prices currently trade around the 0.8000 psychological mark, with bulls looking to build on the momentum further beyond the 100-day Simple Moving Average (SMA).
The Swiss Franc (CHF) continues with its relative performance on the back of the recent data, which showed that Switzerland’s export-oriented economy contracted in the third quarter for the first time in over two years. The US Dollar (USD), on the other hand, sits near a one-week high amid reduced bets for another interest rate cut by the US Federal Reserve (Fed) in December. This turned out to be a key factor acting as a tailwind for the USD/CHF pair.
The USD bulls, however, seem reluctant to place aggressive bets amid concerns about the weakening economic outlook on the back of the longest-ever US government shutdown, which might prompt the Fed to ease policy further. Hence, FOMC minutes will be scrutinized closely for cues about the Fed's rate-cut path, which, in turn, will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/CHF pair.
Traders this week will also confront the delayed release of the US Nonfarm Payrolls (NFP) report for September on Thursday amid signs of a softening labor market. In the meantime, reviving safe-haven demand, along with expectations that the Swiss National Bank (SNB) will keep its policy rate at 0% in December amid forecasts of rising inflation, could act as a tailwind for the safe-haven CHF. This, in turn, might cap the upside for the USD/CHF pair.
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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