USD/CHF gains traction above 0.8250 as traders await FOMC Minutes
- USD/CHF climbs to around 0.8285 in Wednesday’s early European session, bolstered by a modest rebound in the US Dollar.
- US consumer confidence improved in May after five straight months of declines.
- Persistent US fiscal challenges, economic uncertainties and geopolitical risks might boost the safe-haven flows, supporting the CHF.
The USD/CHF pair gains ground to near 0.8285 during the early European session on Wednesday. Better-than-expected US Consumer Confidence data and improved risk sentiment provide some support to the US Dollar (USD). Traders brace for the Swiss ZEW Survey and the Minutes of the Federal Open Market Committee (FOMC), which will be released later on Wednesday.
The Greenback remains strong after US President Donald Trump backed away from imposing steep tariffs on EU goods. Additionally, encouraging economic signs in the United States (US) contribute to the USD’s upside. The Conference Board's Consumer Confidence Index improved to 98.0 in May versus 86.0 prior (revised from 85.7). This reading suggested a growing optimism among US consumers.
Nonetheless, investor appetite for safe-haven assets remains supported by persistent fiscal challenges in the US, economic uncertainties, and geopolitical tensions. Russian officials said early on Wednesday that Russian air defences destroyed or intercepted well over 100 Ukrainian drones far into the night over widely separated areas of Russia, per Reuters. Russia in the past week also sent waves of drones to attack Ukrainian cities.
Following five consecutive rate cuts, the Swiss National Bank (SNB) is expected to cut its benchmark rate to 0% at the SNB’s upcoming policy meeting on June 19. That would end a period of positive monetary policy, the lowest in almost three years. SNB President Martin Schlegel suggested that the central bank would go sub-zero if needed. That doesn’t appear imminent for now, with only a handful of SNB policymakers expecting such a move this year.
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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