USD/CHF declines below 0.8050 amid Fed rate cut expectations, US PCE inflation data eyed
- USD/CHF weakens to near 0.8030 in Friday’s early European session.
- The prospect of Hassett taking over as Fed Chair after Jerome Powell’s term ends in May could weigh on the USD.
- Softer-than-expected Swiss CPI inflation data could weigh on the Swiss Franc and help limit the pair’s losses.
The USD/CHF pair loses momentum to around 0.8030 during the early European session on Friday. Rising bets for a US interest rate cut next week and the prospect of White House economic adviser Kevin Hassett taking over as Federal Reserve (Fed) Chair weigh on the US Dollar (USD) against the Swiss Franc (CHF). The US Personal Consumption Expenditures (PCE) Price Index inflation report for September will take center stage later on Friday.
The Greenback remains under selling pressure as traders increase their expectation that the US central bank will deliver a 25 basis points (bps) rate reduction at its December meeting. According to the CME FedWatch tool, financial markets are currently pricing in nearly an 85% chance of a quarter-point rate cut next week.
Furthermore, US President Donald Trump said on Tuesday he plans to announce his choice to succeed Jerome Powell as head of the Fed early next year. White House economic adviser Kevin Hassett has emerged as the frontrunner to be the next Fed chair, which might drag the USD lower, as analysts believe that Hassett is expected to push for more rate cuts.
Switzerland's Consumer Price Index (CPI) unexpectedly fell to 0% in November, and the core measure slowed to a four-year low, the Swiss Federal Statistical Office showed on Wednesday. The softer-than-expected inflation reading supports the view that the Swiss National Bank (SNB) will maintain an accommodative monetary policy. This, in turn, could lead to a weakening of the Swiss Franc (CHF) against the Greenback and act as a tailwind for the 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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