USD/CHF breaks below 0.8400, downside appears limited due to dovish SNB policy outlook
- USD/CHF could come under pressure amid rising expectations of additional monetary easing by the Swiss National Bank.
- The Swiss Franc's safe-haven appeal may weaken as global trade tensions show signs of easing.
- Trump said that he is working to improve US access to Chinese markets and characterized US-China relations as "excellent."
The USD/CHF pair continues to lose ground for the second consecutive day, trading near 0.8390 during Wednesday’s Asian session. Downside risks appear limited, as growing expectations of further monetary easing by the Swiss National Bank (SNB) weaken the Swiss Franc (CHF).
Last week, SNB Chairman Martin Schlegel reaffirmed the central bank’s readiness to intervene in the currency market and potentially cut interest rates—even into negative territory—should inflation persistently fall short of its target.
Meanwhile, the safe-haven appeal of the Swiss Franc may face headwinds due to easing global trade tensions. Reports suggest the US and China have reached a preliminary agreement to significantly scale back tariffs. Under the proposed deal, US tariffs on Chinese goods would be reduced from 145% to 30%, while China would lower tariffs on US imports from 125% to 10%. The move is widely viewed as a constructive step toward de-escalating trade friction between the two nations.
Adding to the optimism, US President Donald Trump told Fox News that the US is working to broaden access to Chinese markets and described bilateral relations with China as “excellent.” He also expressed openness to direct talks with President Xi Jinping in pursuit of a comprehensive trade agreement.
On the other hand, recent weakness in the US Dollar (USD) has contributed to USD/CHF’s volatility. The Greenback came under pressure after US inflation data came in softer than expected. Market focus now turns to key upcoming US data releases, including the Producer Price Index (PPI) and the University of Michigan’s Consumer Sentiment Survey, both scheduled for later this week.
April’s US Consumer Price Index (CPI) rose 2.3% year-over-year, slightly below March’s 2.4% increase and market expectations. Core CPI, which excludes food and energy, advanced 2.8% annually, matching both the prior month and consensus estimates. On a monthly basis, both headline and core CPI posted a 0.2% gain.
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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