USD/CHF holds above 0.8050 as Fed Governor Cook refuses to resign
- USD/CHF trims intraday losses as Fed Governor Lisa Cook defied President Donald Trump.
- Fed Governor Cook said she would not step down and will continue fulfilling her duties.
- Stronger Swiss employment data and easing inflation fuel expectations of additional SNB rate cuts.
USD/CHF extends its gains for the second successive session, trading around 0.8060 during the Asian hours on Tuesday. The pair appreciates as the US Dollar (USD) recovers its recent losses after US Federal Reserve (Fed) Governor Lisa Cook refused to resign after US President Donald Trump announced to remove her from the position on the Fed's board of directors. Cook said that she will not exit and will continue to carry out duties.
The upside of the USD/CHF pair could be limited as the Swiss Franc (CHF) may gain ground amid increased safe-haven demand, driven by rising concerns over Fed independence. Moreover, the US Dollar may face challenges as market participants expect that the dismissal of the Fed Governor Cook may increase the chances of earlier interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs.
Additionally, Fed Chair Jerome Powell said at the Jackson Hole symposium last week that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn't set in stone. Traders will likely await the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge.
Swiss Employment Level rose 0.6% year-on-year to 5.532 million in the second quarter, matching the pace of the previous period, along with inflation remaining below the Swiss National Bank’s (SNB) 2% target, bolstering expectations for further rate cuts, potentially back into negative territory.
Additionally, the newly imposed 39% US tariff on Swiss imports is set to weigh heavily on Switzerland’s export-driven economy and could increase pressure on the Swiss National Bank (SNB) to further ease policy. However, the Swiss government announced last week that it will intensify efforts to enhance the country’s appeal as a business hub, including measures like easing regulatory burdens and delaying costly new rules.
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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