USD/CHF holds gains above 0.7800 as US Dollar gains on risk aversion
- USD/CHF appreciates as safe-haven demand increases due to the Middle East war.
- ISM Manufacturing PMI eased to 52.4 in February from 52.6, beating 51.8 expectations.
- Swiss Franc weakens on expectations that the Swiss National Bank will maintain an accommodative stance.
USD/CHF gains ground for the second successive session, trading around 0.7810 during the Asian hours on Tuesday. The pair advances as the US Dollar (USD) strengthens on heightened safe-haven demand amid the Middle East war.
President Donald Trump said the “big wave” of strikes against Iran in the ongoing conflict is still to come. Marco Rubio added that the US is preparing for a “major uptick” in attacks on Iran over the next 24 hours. The US and Israel have reportedly struck thousands of targets inside Iran, extending their joint campaign.
A Reuters report cited Ebrahim Jabari, senior adviser to the commander-in-chief of the Islamic Revolutionary Guard Corps, as saying: “The Strait of Hormuz is closed. If anyone tries to pass, the Revolutionary Guards and the regular navy will set those ships ablaze.”
On the data front, the Institute for Supply Management Manufacturing PMI eased to 52.4 in February from 52.6 in January, but exceeded expectations of 51.8. The Manufacturing Employment Index improved to 48.8 from 48.1, though it remained in contraction.
Meanwhile, the USD/CHF pair climbs as the Swiss Franc (CHF) weakens on expectations that the Swiss National Bank will maintain an accommodative policy stance. Swiss inflation held steady at 0.1% YoY in January, matching December’s reading and staying at the lower bound of the SNB’s 0%–2% price stability range.
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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