USD/CHF clings to gains near 0.7970, focus shifts to US CPI data
- USD/CHF holds onto gains near 0.7970 as the US Dollar trades firmly.
- Receding US-China trade frictions have improved the appeal of the US Dollar.
- Investors await the US CPI data for September.
The USD/CHF pair trades firmly near Tuesday’s high around 0.7970 during the Asian trading session on Wednesday. The Swiss Franc pair exhibits strength as the US Dollar (USD) trades broadly firm on hopes that the United States (US) and China will reach a trade deal soon.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near 98.90.
The speculation for the US-China reaching a consensus intensified earlier this week after President Donald Trump commented that he hopes to reach a fair deal with China after his meeting with leader Xi Jinping in South Korea later this week.
However, US President Trump on Tuesday expressed slight concerns regarding the likelihood of the meeting with Beijing.
On the domestic front, investors await the delayed US Consumer Price Index (CPI) data for September, which will be published on Saturday. The inflation data has been delayed due to the ongoing US government shutdown. Economists expect the US headline inflation to have grown at an annual pace of 3.1% against 2.9% in August, with core figures rising steadily by 3.1%.
Meanwhile, the Swiss Franc (CHF) exhibits a mixed performance while investors seek fresh cues on whether the Swiss National Bank (SNB) would push interest rates into a negative territory amid downside inflation risks. In September, the Swiss CPI deflated by 0.2% against a 0.1% decline seen in August.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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