USD/CHF extends the decline below 0.8250, US PCE data in focus
- USD/CHF softens to around 0.8230 in Friday’s early European session.
- Persistent trade-related uncertainties boost the safe-haven flows, supporting the Swiss Franc.
- US April Personal Consumption Expenditures (PCE) Price Index report will take center stage later on Friday.
The USD/CHF pair loses ground to near 0.8230 during the early European session on Friday. The Swiss Franc (CHF) edges higher against the US Dollar (USD) due to persistent trade-related uncertainties.
A federal appeals court late Thursday temporarily paused a sweeping ruling against US President Donald Trump’s global tariffs while it takes more time to consider the administration’s request for a longer-lasting hold. Moreover, the Wall Street Journal (WSJ) reported that “US President Donald Trump's administration is considering an existing law that includes language allowing for tariffs of up to 15% for 150 days.”
However, Trump has not made a final decision. The administration’s unpredictable policy, along with the geopolitical tensions in the Middle East and the ongoing Russia-Ukraine war, could support a safe-haven currency like the CHF and create a headwind for the pair.
Following five consecutive rate cuts, the Swiss National Bank (SNB) is anticipated to cut its benchmark rate to 0% at the 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 said that the Swiss 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.
Traders await the US April Personal Consumption Expenditures (PCE) Price Index report due later on Friday for fresh impetus. Also, the final reading of the Michigan Consumer Sentiment and the Chicago of Purchasing Managers Index (PMI) will be published. If the reports showed better-than-expected outcomes, this could lift the USD in the near term.
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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