USD/CHF climbs to over two-month high; bulls await move beyond 0.8100 amid firmer USD
- USD/CHF prolongs its uptrend for the fifth straight day amid sustained USD buying interest.
- The Fed’s hawkish tilt offsets economic concerns and continues to push the USD higher.
- Bets that the SNB could cut rates into negative territory further exert pressure on the pair.
The USD/CHF pair attracts buyers for the fifth consecutive day and climbs to its highest level since August 22 during the Asian session on Tuesday. The momentum lifts spot prices to the 0.8100 neighborhood and is sponsored by sustained US Dollar (USD) buying.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, advanced to an over three-month top on the back of the US Federal Reserve's (Fed) hawkish tilt. In fact, Fed Chair Jerome Powell pushed back against market expectations for another interest rate cut in December. This helps offset concerns about economic risks stemming from the prolonged US government shutdown and continues to act as a tailwind for the buck, which, in turn, is seen pushing the USD/CHF pair higher.
Meanwhile, the Swiss Franc (CHF) might continue with its relative underperformance as softer inflation data revived bets that the Swiss National Bank (SNB) will lower interest rates into negative territory. This marks a significant divergence in comparison to the Fed's outlook. Apart from this, the underlying bullish sentiment surrounding the global financial markets undermines the CHF, which, in turn, favors bullish traders and backs the case for a further near-term appreciating move for the USD/CHF pair.
Moving ahead, there isn't any relevant market-moving economic data due for from the US amid the ongoing US government closure. However, comments from influential FOMC members will be scrutinized for more cues about the future rate-cut path, which, in turn, will drive the USD demand. Apart from this, the broader risk sentiment will be looked upon to grab short-term trading opportunities around the USD/CHF pair.
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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