USD/CHF treads water around 0.7900 with markets awaiting news from Iran
- USD/CHF remains capped below 0.7930 despite the sourer market sentiment.
- Trump has announced the blockade of Hormuz after the failure of last weekend's peace talks.
- Iranian authorities warned that the presence of the US Navy in the Strait will be considered a violation of the ceasefire.
The US Dollar (USD) is giving away previous gains against the Swiss Franc (CHF), as the pair remains trapped within a roughly 70-pip range around 0.7900 on Monday, with upside attempts capped below the 0.7925-0.7930 area.
Last weekend’s peace talks between the US and Iran ended without agreement, and US President Donald Trump announced that he has ordered the US military to block any vessel trying to enter or leave the ports of Iran from Monday, 10:00 Easter time (14:00 GMT)
Iranian authorities warned that the US imposition of restrictions on the movement of vessels is illegal and “amounts to piracy.” The Revolutionary Guard warned that the presence of foreign military vessels in Hormuz will be considered a violation of the ceasefire and that they will be “dealt with severely.”
Meanwhile, the two-week truce remains in place, keeping hopes of a further round of negotiations alive and limiting the US Dollar’s upside attempts for now.
The macroeconomic calendar is practically void on Monday, and news from Iran will continue to drive markets. On Tuesday, the US Producer Prices Index from March is expected to follow the track of last Friday’s US Consumer Prices Index (CPI) release, and add pressure on the Federal Reserve (Fed) to reverse the easing cycle.
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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