USD/CHF consolidates above 0.7950 after rejection at 0.8000
- The US Dollar failed again at 0.8000 and is looking for direction within a tight range above 0.7950.
- A moderate risk appetite keeps the US Dollar on its back foot on Friday.
- In Switzerland, soft inflation data is weighing on a deeper Swiss Franc recovery.
The US Dollar was rejected again at the 0.8000 psychological level against the Swiss Franc, and is trading lower on Friday, weighed by a moderate risk appetite. The pair, however, remains trading range-bound within the weekly range, with 0.7930 holding downside attempts for now.
The US Dollar edged up on Thursday, as Fed Dallas President Lorie Logan warned about ccutting interest rates too fast and affirmed that she is not eager to ease monetary policy further, which dented investors’ hopes of a rate cut in October.
Weak US employment data has been weighing on the USD this week
US data, however, confirmed that employment creation has stalled, which keeps pressure on the Fed to support the labour market. In the absence of Jobless Claims data, the focus shifted to US Challenger Job Cuts, which showed a decline on layoffs but also the weakest year-to-date hiring levels since 2009, during the financial crisis.
These figures come after the ADP Employment Change earlier revealed a 32K decline in net employment in September, against market expectations of a 50K increase, and the revision of August data to a 3K decline from the 54K gain previously estimated.
In Switzerland, CPI figures released on Thursday confirmed the deflationary trends in the Swiss economy. Consumer prices grew at a steady 0.2% year-on-year pace in September, against expectations of a moderate uptick to 0.3% while monthly inflation accelerated its contraction to -0.2% from -0.1% in August. These figures add pressure on the Swiss National Bank to cut interest rates into negative territory and are keeping the Swiss Franc from rallying further.
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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