USD/CHF extends downside to near 0.8250, US PMI data in focus
- USD/CHF remains under selling pressure near 0.8250 in Thursday’s early European session.
- US fiscal concerns hurt US Dollar, supporting the safe-haven CHF.
- Trump told EU leaders that Putin isn’t ready to end the war.
The USD/CHF pair extends the decline to around 0.8250 during the early European session on Thursday. The Greenback weakens against the Swiss Franc (CHF) due to US fiscal concerns. Traders will take more cues from the advanced US S&P Purchasing Managers Index (PMI) for May.
US President Donald Trump's "One Big, Beautiful Bill" is set to be voted on by the House on Thursday, and if passed, it would increase the federal deficit by $3 trillion to $5 trillion over the next 10 years. This adds to concerns about the worsening US fiscal outlook and weighs on investors' sentiment. These US fiscal concerns, along with a tepid auction of Treasury bonds, undermine the US Dollar (USD) against the CHF.
The Wall Street Journal (WSJ) reported late Wednesday that US President Donald Trump told European leaders that Russian President Vladimir Putin isn’t ready to end the war because he thinks he is winning. Trump shifted from suggesting sanctions to proposing lower-level talks at the Vatican between Russia and Ukraine.
Traders will also monitor the next round of Iran-US talks that will take place on Friday in Rome. Any signs of progress in negotiations or easing geopolitical tensions could undermine safe-haven currencies like the Swiss Franc and create a tailwind for the USD/CHF 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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