USD/CHF steadies near 0.7700 as soft Swiss CPI supports SNB dovish outlook
- USD/CHF moves little as the Swiss Franc steadies after soft CPI keeps SNB accommodative expectations intact.
- Swiss consumer inflation stayed at 0.1% YoY in January, at the lower end of the SNB’s target range.
- US Dollar may struggle after softer January Consumer Price Index data boosted expectations of Fed rate cuts later this year.
USD/CHF remains steady after opening above its previous close, trading around 0.7690 during the early European hours on Monday. The pair trades in a narrow range as the Swiss Franc (CHF) steadies, with recent Swiss Consumer Price Index (CPI) data doing little to shift expectations that the Swiss National Bank (SNB) will retain an accommodative stance in the near term.
Swiss consumer inflation held at 0.1% YoY in January, unchanged from December and at the lower bound of the SNB’s 0%–2% price-stability target. Consumer Price Index fell by 0.1%, month-over-month, compared with expectations of 0%.
SNB President Martin Schlegel said earlier this month that the central bank is willing to tolerate brief periods of negative inflation while focusing on medium-term objectives. Schlegel added that low inflation, combined with the current 0% policy rate, leaves the Swiss central bank in a challenging position.
The USD/CHF pair could further face challenges as the US Dollar (USD) may struggle after softer January Consumer Price Index (CPI) data reinforced expectations that the Federal Reserve (Fed) may cut rates later this year.
The CME FedWatch tool suggests that investors now assign nearly a 90% probability to the Fed holding rates steady at its March meeting, up from nearly 83% a week earlier. Markets are pricing in a 25-basis-point cut seen in June at around a 50.5% probability.
US CPI rose 2.4% year-over-year (YoY) in January, slowing from 2.7% in December and coming in below the 2.5% forecast. On a monthly basis, consumer inflation moderated to 0.2%, down from 0.3% previously and under market expectations of 0.3%.
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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