USD/CHF extends the decline to near 0.8000 ahead of Swiss/US GDP releases
- USD/CHF softens to near 0.8015 in Thursday’s Asian session.
- Fed's Williams signaled a rate cut at the policy meeting next month.
- Traders brace for the GDP reports from Switzerland and the US later on Thursday.
The USD/CHF pair extends its downside to around 0.8015 during the Asian trading hours on Thursday. The US Dollar (USD) remains under selling pressure against the Swiss Franc (CHF) due to persistent concerns over the Fed’s independence. Investors will keep an eye on the release of Gross Domestic Product (GDP) reports from Switzerland and the US later on Thursday.
US President Donald Trump stated on Monday that he has fired Fed Governor Lisa Cook, the first instance of a president firing a central bank governor in the Fed’s history. Trump said that he will soon have a “majority” of his nominees on the Fed board who will back his desire to slash interest rates. The unpredictable actions of the Trump administration and the prospect of a more dovish Fed could undermine the Greenback in the near term.
Additionally, traders increased bets for a Fed interest rate reduction next month after New York Fed President John Williams signaled a cut was possible. This might contribute to the USD’s downside. Williams said on Wednesday it is likely interest rates can fall at some point, but policymakers will need to see what upcoming data indicate about the economy to decide if it is appropriate to make a cut at September’s meeting.
The Swiss GDP will be in the spotlight later on Thursday. The Swiss economy is estimated to grow 0.1% QoQ and 1.4% YoY in the second quarter (Q2). Any surprise downside to the Swiss economic data could drag the CHF lower and help limit the pair’s losses.
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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