USD/CHF remains on the defensive near 0.8200 on US fiscal concerns
- USD/CHF remains under selling pressure near 0.8200 in Monday’s early European session, losing 0.10% on the day.
- US fiscal concerns exert some selling pressure on the US Dollar.
- Geopolitical risks and the ongoing Russia-Ukraine war support the Swiss Franc, a safe-haven currency.
The USD/CHF pair remains on the defensive around 0.8200 during the early European trading hours on Monday. US trade policy uncertainty and concerns over fiscal health drag the US Dollar (USD) lower against the Swiss Franc (CHF). Investors await the FOMC Minutes on Wednesday, which might offer some hints about the interest rate path.
Softer-than-expected US inflation reports last week and concerns over fiscal health lift bets that the US Federal Reserve (Fed) will step in to support the US economy. This, in turn, exerts some selling pressure on the Greenback. Markets expect the US Federal Reserve (Fed) will cut twice this year, with the next move not happening until September.
Investors will also take more cues from the preliminary reading of US Gross Domestic Product (GDP) for the first quarter (Q1) and Personal Consumption Expenditures (PCE) - Price Index for April. In case of a stronger-than-expected outcome, this could help limit the USD’s losses in the near term.
Meanwhile, persistent geopolitical tensions in the Middle East and the ongoing Russia-Ukraine war might boost the safe-haven flows, benefiting the Swiss Franc. Ukrainian officials reported early Sunday that a massive Russian drone-and-missile attack targeted Kyiv and other regions in the country for a second consecutive night, killing at least 12 people and injuring dozens. Officials described it as the largest aerial assault since Russia’s full-scale invasion of Ukraine in February 2022.
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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