Swiss Franc moves little following Real Retail Sales data
- USD/CHF holds steady after Swiss Real Retail Sales rose 2.3% year-over-year in July, beating expectations.
- All surveyed bankers expect the Swiss National Bank to keep its policy rate at 0% through year-end.
- Traders boosted September Fed rate hike bets after officials warned inflation must consistently reach its 2% target.
USD/CHF appreciates after registering losses in the previous day, trading around 0.8100 during the Asian hours on Tuesday. The pair remains steady despite stronger-than-expected Swiss economic data. July Real Retail Sales expanded by 2.3% year-over-year, outperforming the forecasted 1.3% gain and building on June's upwardly revised 1.9% growth rate. SVME - Purchasing Managers' Index will be eyed later in the day.
According to a Swiss Bankers Association survey, all respondents expect the Swiss National Bank (SNB) to maintain its policy rate at 0% through year-end. Markets now price in a first rate hike in June 2027, whereas most economists project the initial increase in early 2028. This extended period of low rates could make the Swiss Franc (CHF) increasingly attractive as a funding currency for carry trades.
The USD/CHF pair gains as the US Dollar (USD) rebounds, driven by hawkish sentiment surrounding the Federal Reserve (Fed). Traders have sharply increased their bets on a September rate hike following remarks from Fed officials indicating that more work remains if inflation does not consistently return to the 2% target.
Reflecting this shift, the CME FedWatch Tool now prices in a greater than 66% probability of a rate hike in September, up significantly from roughly 41% just a week ago. Investors are closely monitoring a busy economic calendar for further policy cues, with upcoming US manufacturing and services sector data paving the way for Friday’s crucial August Nonfarm Payrolls report.
US political pressure clouds Fed policy outlook
Analysts at BNP Paribas highlight rising political headwinds for US monetary policy, noting that “in the United States, President Trump has been relentlessly attacking the Federal Reserve and its leadership out of anger that they have not cut interest rates more.” They add that financial markets have been left questioning the central bank’s resolve, observing that “financial markets have been unsure whether the Chairman he appointed will deliver the policy tightening that appears likely to be needed to restore price stability.”
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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