USD/CHF climbs toward 0.7950 as Swiss Franc weakens due to diminished safe-haven demand
- USD/CHF holds gains as the Swiss Franc faces challenges due to improving market mood.
- The Swiss Franc may attract buyers as the SNB is expected to postpone further monetary policy easing.
- The market sentiment improved following the news that the EU and the US are close to finalizing a deal.
USD/CHF edges higher for the second successive day, trading around 0.7940 during the European hours on Thursday. The pair appreciates as the Swiss Franc (CHF) struggles due to weakened safe-haven demand, driven by the optimism over further trade deals between the United States (US) and key partners. Investors are likely awaiting the S&P US Global Purchasing Managers Index (PMI) data for July later in the day.
The Swiss Franc (CHF) may regain ground as traders expect the Swiss National Bank (SNB) to delay further easing of monetary policy following the recent Swiss inflation report for June. The annual Swiss Consumer Price Index (CPI) inched up 0.1% in June, while the monthly CPI increased 0.2%.
The market sentiment improved following the news that the European Union (EU) and the United States (US) are closing in on a deal that would impose 15% tariffs on EU goods imported into the US, per the Financial Times. Additionally, US President Donald Trump announced on Tuesday a major tariff deal with Japan, which includes a 15% tariff on Japanese exports.
Additionally, the USD/CHF pair gains ground as the US Dollar (USD) possibly receives support from the easing concerns over the Federal Reserve’s (Fed) independence. US Treasury Secretary Scott Bessent noted late Thursday that a nominee for the next Federal Reserve Chair is likely to be announced in December or January. Bessent highlighted that there is “no rush” to choose a successor to current Fed Chair Jerome Powell. Traders will focus on next week’s Federal Open Market Committee meeting, where rates are expected to be kept on hold, with potential cuts anticipated in October.
However, the recent comments from US President Donald Trump at an AI summit in Washington on Thursday signaled a shift toward a more aggressive tariff strategy targeting nearly all US trading partners, with exceptions made only for a limited number of nations. Trump established a new baseline for tariffs ahead of the August 1 deadline by indicating that the upcoming tariffs are set to begin at a minimum rate of 15%. Trump also said that “We will have a straight, simple tariff of anywhere between 15% and 50%.”
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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