USD/CHF maintains position above 0.8050 as US Dollar advances due to trade optimism
- USD/CHF rises as trade optimism improves due to recent trade developments.
- Traders expect the US-China to extend trade truce by three months ahead of an August 12 deadline.
- The CHF may regain its ground as the Swiss National Bank may delay further monetary policy easing.
USD/CHF extends its gains for the second successive session, trading around 0.8060 during the European hours on Tuesday. The pair appreciates as the US Dollar (USD) receives support from trade optimism, driven by the recent trade developments between the United States (US) and its trading partners.
The United States and European Union (EU) reached a trade agreement finalized on Sunday, setting 15% tariffs on most European goods, taking effect on August 1. Additionally, market sentiment improves on expectations of the US-China to extend a fragile trade truce by three months ahead of an August 12 deadline. US President Donald Trump also announced in a social media post Monday to resume trade negotiations with Cambodia and Thailand after both countries ended a five-day fight along their disputed border.
The US Dollar also possibly gains ground as the US Federal Reserve (Fed) is widely expected to keep the benchmark interest rate steady between 4.25% and 4.50% on Wednesday. The Federal Open Market Committee (FOMC) press conference will be observed for any signs that rate cuts may start in September. Market participants will likely observe the upcoming data this week, including the Q2 Personal Consumption Expenditures (PCE) inflation report and July’s Nonfarm Payrolls, for further insight into the health of the US economy.
The USD/CHF pair receives support as the safe-haven Swiss Franc (CHF) struggles due to the market optimism over trade deals between the United States (US) and key partners. However, the downside of the CHF could be restrained as traders expect the Swiss National Bank (SNB) to delay further easing of monetary policy following the recent Swiss inflation report for June.
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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