USD/CHF trades near 0.8350, pulls back from recent gains due to market caution
- USD/CHF depreciates as the US Dollar struggles following Moody’s decision to downgrade the US credit rating by one notch.
- US Treasury Secretary Bessent stated that Trump intends to implement tariffs on trade partners that fail to negotiate in "good faith".
- The Swiss Franc faces challenges due to growing expectations of additional monetary easing by the Swiss National Bank.
USD/CHF is retreating from gains made in the previous session, trading near 0.8360 during Asian hours on Monday. The decline follows a surprise downgrade of the US government's credit rating, which sparked renewed selling in the US fixed income market.
Moody’s has downgraded the US credit rating by one notch—from Aaa to Aa1—citing surging debt levels and an increasing burden from interest payments. This follows similar downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011.
However, the US Dollar (USD) received support from renewed optimism over a 90-day US-China trade truce and expectations of further trade agreements with other nations. Meanwhile, US Treasury Secretary Scott Bessent told CNN on Sunday that President Donald Trump plans to impose tariffs at previously threatened levels on trade partners who fail to negotiate in “good faith.”
Economic data released last week showed signs of easing inflation, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) indicating a slowdown in price pressures. These figures have increased expectations that the Federal Reserve could cut interest rates further in 2025, adding to the downward bias on the Greenback. Moreover, weak US Retail Sales data has reinforced concerns about a prolonged period of subdued economic growth.
On the downside, losses in the USD/CHF pair may be limited by weakness in the Swiss Franc (CHF), amid growing expectations of additional monetary easing by the Swiss National Bank (SNB). SNB Chairman Martin Schlegel recently stated that all policy tools—including a potential return to negative interest rates—remain on the table, although he expressed a desire to avoid such measures. Markets are now broadly expecting a 25 basis-point cut to zero at the SNB's next policy meeting on June 19.
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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