USD/CHF slips below 0.7900 ahead of Swiss ZEW Expectations survey
- USD/CHF declines ahead of the Swiss ZEW Expectations survey for December due on Tuesday.
- The US Dollar struggles on growing expectations that the Federal Reserve further ease policy.
- Fed’s Miran said not easing policy would increase the risk of a recession.
USD/CHF extends its losses for the second consecutive day, trading around 0.7900 during the Asian hours on Tuesday. Traders are likely awaiting the Swiss ZEW Expectations survey for December due later in the day for fresh signals on business and employment conditions, which could offer fresh cues on the Swiss National Bank’s (SNB) rate outlook.
Traders will shift their focus toward the US Gross Domestic Product (GDP) Annualized for the third quarter due later in the North American session, which is expected to come at 3.2% for Q3, slowing down from the 3.8% growth in Q2. Moreover, the US ADP Employment Change 4-week average and Q3 Core Personal Consumption Expenditures (PCE) will also be eyed.
The pair depreciates as the US Dollar (USD) declines amid growing odds of the Federal Reserve continuing its easing policy. Fed Member of the Board of Governors Stephen Miran said in an interview on Bloomberg TV on Monday that the last few months have seen data consistent with his view of the world and that he doesn’t see a recession in the near term. Miran added that failing to ease policy would raise recession risks.
However, Fed officials remain deeply divided on the path forward. Fed President Beth Hammack said on Sunday that monetary policy is in a good position to pause and assess the effects of the 75-basis-point (bps) rate cuts on the economy during the first quarter.
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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