USD/CHF remains stronger near 0.7800 on fading Fed rate cut odds
- USD/CHF rises as the US Dollar strengthens on reduced expectations for Fed rate cuts.
- Strait of Hormuz disruptions lift energy prices, revive inflation fears, and curb Fed rate cut bets.
- SNB Vice-President Antoine Martin reaffirmed readiness to intervene against excessive CHF appreciation.
USD/CHF pares its recent losses from the previous session, trading around 0.7800 during the Asian hours on Thursday. The pair appreciates as the US Dollar (USD) gains ground, as the Iran conflict has entered its sixth day.
Iranian retaliatory strikes on energy infrastructure have disrupted critical Middle East Oil and gas flows, particularly through the Strait of Hormuz, driving energy prices higher and reviving inflation concerns. In turn, traders have scaled back expectations for Federal Reserve (Fed) rate cuts, lending support to the US Dollar.
Meanwhile, US and Israeli strikes across Iranian territory, alongside extensive Iranian missile and drone retaliation targeting regional sites and military facilities, have prolonged the conflict and amplified its broader impact.
Hostilities intensified further after a US submarine reportedly sank an Iranian warship off the coast of Sri Lanka. US Defense Secretary Pete Hegseth described it as the “first such attack on an enemy since World War II.”
However, the upside of the USD/CHF pair could be restrained as the Swiss Franc (CHF) strengthens on safe-haven demand amid heightened geopolitical tensions. Meanwhile, Swiss National Bank (SNB) Vice-President Antoine Martin reiterated the central bank’s readiness to intervene to prevent excessive CHF appreciation.
Swiss inflation held steady at 0.1% in February for a third straight month, defying expectations of a 0.1% decline. With price growth near the lower edge of the SNB’s 0–2% target range, policymakers remain cautious over lingering deflation risks.
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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