USD/CHF falls to near 0.7950 ahead of US inflation data
- USD/CHF edges lower as traders adopt caution ahead of US CPI data due on Tuesday.
- The US inflation rate is expected to rise to 2.7% year-over-year in June, up from 2.4% recorded in May.
- Switzerland’s hotter-than-expected inflation report for June reduces the likelihood of further SNB policy easing.
USD/CHF has retraced its recent gains registered in the previous session, trading around 0.7960 during the European hours on Tuesday. The pair holds losses ahead of June's US Consumer Price Index (CPI) figures due later in the day.
The US inflation report will likely provide new ideas surrounding the Federal Reserve’s (Fed) monetary outlook. The US CPI is anticipated to increase by 2.7% year-over-year in June, following the 2.4% rise in May. The monthly CPI is likely to climb by 0.3%, up from 0.1% prior. Meanwhile, Core CPI is likely to increase by 3% YoY, and monthly core inflation may climb to 0.3%, up from 0.1% prior.
The USD/CHF pair faces challenges as the Swiss Franc (CHF) receives support amid increased safe-haven demand, driven by renewed trade tensions. This follows the US President Donald Trump’s latest threat to impose “very severe” tariffs on Russia if no peace deal is reached within 50 days. Moreover, Switzerland is still awaiting an official US customs letter; however, a draft trade agreement indicates the country may receive preferential treatment, potentially exempting it from pharma-related tariffs.
The recent Swiss hotter inflation report for June weakens the likelihood of further policy easing by the Swiss National Bank (SNB). SNB officials are expected to keep the interest rate unchanged at 0% in September, with many analysts projecting it will likely stay at that level through 2026.
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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