USD/CHF softens below 0.9150 as investors await US CPI release

Source Fxstreet
  • USD/CHF edges lower to near 0.9120 in Wednesday’s early European session. 
  • Traders will keep an eye on the US December CPI and the threat of potential tariff policies by Trump. 
  • Geopolitical risks could boost the CHF and act as a headwind for the pair.

The USD/CHF pair trades with a mild negative bias around 0.9120 during the early European session on Wednesday. The markets might turn cautious ahead of the US Consumer Price Index (CPI) inflation data for December on Wednesday. 

The softer-than-expected US PPI report on Tuesday weighs on the Greenback against the Swiss Franc (CHF). The attention will shift to the US December CPI inflation data, which is due later on Wednesday. Analysts said the impact on the USD from the inflation report is likely to be short-lived as traders will closely monitor the threat of potential tariffs on imported goods by President-elect Donald Trump's incoming administration. 

"Markets are still looking ahead to the incoming administration's policies and the impact on prices," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

On the Swiss front, Palestinians and Israelis have expressed cautious optimism that a deal on a ceasefire in the Gaza Strip and the release of hostages held there is close after 15 months of devastating war. The escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict could boost the safe-haven flows, benefitting the Swiss Franc. 

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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