USD/CHF holds losses near 0.8050 amid rising Fed rate cut bets, US NFP eyed
- USD/CHF struggles as the US Dollar loses ground ahead of US Nonfarm Payrolls.
- CME FedWatch tool suggests a pricing in more than 99% of a 25-basis-point Fed rate cut in September.
- The Swiss Franc receives support from safe-haven inflows, driven by rising debt and persistent inflation concerns.
USD/CHF retraces its recent gains from the previous session, trading around 0.8050 during the Asian hours on Friday. The pair depreciates as the US Dollar (USD) struggles amid rising odds of a Federal Reserve rate cut in September, following softer-than-expected United States (US) job data released on Thursday. The CME FedWatch tool indicates a pricing in more than 99% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 87% a week ago.
The US Initial Jobless Claims increased to 237K in the week ending August 30, up from 229K previously and above the market forecast of 230K. Meanwhile, the ADP Employment Report showed a gain of 54,000 jobs in August, below expectations of 65,000 and following a revised 106,000 increase in July (from 104,000).
Traders are awaiting further labor market data that could shape the US Federal Reserve’s (Fed) policy decision in September. Economists project US Nonfarm Payrolls to add about 75,000 jobs in August, while the Unemployment Rate is seen at 4.3%.
Additionally, the USD/CHF pair depreciates as the Swiss Franc (CHF) receives support from safe-haven inflows. The yield on the 10-year Swiss government bond fell to 0.30% on Thursday, down more than 5.5%, amid a sharp global bond sell-off fueled by rising debt concerns, persistent inflation risks, and increasing political pressure on central banks.
The Swiss National Bank (SNB) is widely expected to maintain its interest rate at 0% later this month following the Swiss inflation data, which remained at 0.2% in August, aligning with the central bank's target of 0%-2%.
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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