USD/CHF breaks below 0.8200 due to escalating Middle East tensions
- USD/CHF depreciates as the safe-haven demand increases amid rising tensions between Israel and Iran.
- CBS journalist reported that US officials have been told that Israel is fully prepared to launch an operation into Iran.
- US Consumer Price Index climbed 2.4% YoY in May, coming in slightly below the expected 2.5% rise.
USD/CHF extends its losses for the second successive day, trading around 0.8160 during the Asian hours on Thursday. The pair depreciates as the Swiss Franc (CHF) received support from the increased safe-haven demand amid escalating tensions between Israel and Iran.
According to a Reuters report, the United States (US) decided to reduce its personnel in the Middle East. CBS News senior White House correspondent Jennifer Jacobs reported that US officials have been told that Israel is fully ready to launch an operation into Iran.
US President Donald Trump said on Wednesday that the US would not permit Iran to have a nuclear weapon, per Reuters. The US and Iran are expected to meet on Sunday for nuclear talks. Axios reporter Barak Ravid reported that “White House envoy Steve Witkoff is going to meet Iranian foreign minister Abbas Araghchi in Muscat on Sunday and discuss the Iranian response to the recent US proposal, a US official tells me.”
Additionally, the USD/CHF depreciates as the US Dollar (USD) struggles amid increasing odds of the Fed rate cut in September, boosted by cooler-than-expected US inflation in May. The US Consumer Price Index (CPI) rose 2.4% year-over-year in May, slightly above 2.3% prior but below the market expectations of a 2.5% increase. The core CPI, which excludes volatile food and energy prices, climbed 2.8% YoY in May, compared to the consensus of 2.9%.
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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