USD/CHF strengthens on renewed US Dollar demand
- USD/CHF gains ground to near 0.9030 in Tuesday’s early European session.
- Fed hawkish expectations lift the US Dollar.
- Rising geopolitical risks might boost the safe-haven flows, benefiting the Swiss Franc.
The USD/CHF pair extends its recovery to around 0.9030 during the early European session on Tuesday, bolstered by a firmer US Dollar (USD). Investors brace for the release of the NY Empire State Manufacturing Index for February, which will be published later on Tuesday. Also, the Federal Reserve's (Fed) Mary Daly is scheduled to speak later in the day.
Last week's data showed U.S. consumer prices climbed at the highest pace in almost 18 months in January, highlighting the Fed's message that it was not in a hurry to continue reducing rates despite rising economic uncertainties. This, in turn, continues to underpin the Greenback in the near term. "An extended pause during the first half of this year looks justified and will give the Fed time to assess the impact of trade measures on inflation,” said ANZ strategists.
Israeli warplanes launched airstrikes on the villages of Tayr Harfa and Aaichiyehin in the Jezzine district on Monday night, as well as two explosions in the border town of Odaisseh in the Marjayoun district, breaking the ceasefire in southern Lebanon just before it is due to leave the area, according to Anadolu Agency.
Investors will closely monitor the development surrounding geopolitical tensions in the Middle East. Any signs of escalation in the region could boost the safe-haven currency like the Swiss Franc (CHF) and create a headwind 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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