Swiss Franc holds losses following weaker Real Retail Sales
- Swiss Franc holds losses as weak June Real Retail Sales data came in at 1.5% vs. 3.1% expected.
- US Dollar gained ground as traders adopt caution on hawkish Fed sentiment.
- Trump announced a historic deal featuring Hamas disarmament and Israeli withdrawal from Gaza.
USD/CHF gains ground after two days of losses, trading around 0.8070 during the Asian hours on Friday. The pair appreciates as the Swiss Franc (CHF) remains subdued following the release of Swiss Real Retail Sales data, which came in at 1.5% year-over-year (YoY) in June, falling short of the expected 3.1% (revised from 3.2%). The previous growth rate was 3.4% (revised from 3.5%).
SNB patience cements funding role but leaves room for recovery
Strategists at BNY Mellon note that the Swiss Franc “met further resistance this week” following reports that the SNB is likely to keep policy unchanged “for an extended period.” They add that they are “surprised the market is reacting to these headlines, given how clear the SNB’s conditional forecasts – which explicitly give this guidance – already are.” In their view, the “recent rise in global yields has reinforced the franc’s role as a funding currency,” but with “valuations now point[ing] to meaningful recovery potential,” they see scope for the currency to retrace some of its recent underperformance.
The USD/CHF pair gains ground as the US Dollar (USD) holds gains on market caution, driven by the hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook, along with the Middle East situation.
However, safe-haven demand may wane alongside easing global risk aversion. Market sentiment has improved following positive diplomatic developments, notably in the Middle East where US-Iran talks progress toward securing the Strait of Hormuz. Moreover, US President Donald Trump announced a historic deal outlining the complete disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a breakthrough reportedly confirmed by senior Hamas officials.
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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