USD/CHF eases from 0.7965 intra-day highs as US Dollar’s recovery loses momentum
- The US Dollar recovery loses steam in a dozy market session and gives away daily gains.
- The pair appreciated on Thursday following strong services activity and Jobless Claims figures.
- Recent US data confirms the resilience of the labour market and practically discards a Fed cut next week.
The US Dollar's recovery from multi-week lows against the Swiss Franc, at 0.7910, has failed to gain significant acceptance above 0.7965 and pulled back in the early European market session, leaving the pair practically unchanged in the daily chart.
The Grenback rallied on Thursday after US business activity data beat expectations, led by a significantly larger-than-expected improvement in the services sector that offset the unexpected contraction in manufacturing activity.
At the same time, data from the US Department of Labour revealed that claims for unemployment insurance fell for the sixth consecutive week, to 217,000 last week, from 221,000 in the previous week, against the market consensus, which had anticipated an increase to 227,000.
These figures endorse Fed Powell's “wait and see" stance and practically discard a rate cut after next week’s Fed meeting.
Also on Thursday, an unusual visit by US President Trump to the Federal Reserve ended without major incidents, aside from some criticism about the bank’s headquarters’ renovation costs and the traditional pressures to lower interest rates.
Apart from that, Trump assured that he is not planning to fire Powell, because that would be “a big move” and “unnecessary”, a possibility that had rattled markets in recent weeks and boosted concerns about the central bank’s independence.
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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