USD/CHF remains depressed above 0.8100; looks to Fed’s Powell for fresh impetus
- USD/CHF struggles to lure buyers as July Fed rate cut bets weigh heavily on the USD.
- The Israel-Iran ceasefire further undermines the USD’s global reserve currency status.
- Bearish traders seem reluctant ahead of Fed Chair Powell’s congressional testimony.
The USD/CHF pair remains depressed for the second straight day and drops to over a one-week low during the Asian session on Tuesday amid a broadly weaker US Dollar (USD). Spot prices, however, lack follow-through selling and manage to hold above the 0.8100 mark.
Traders ramped up their bets for a potential interest rate cut by the Federal Reserve (Fed) in July following the release of mixed US PMIs and dovish-sounding remarks from influential FOMC members on Monday. Apart from this, the optimism led by US President Donald Trump's announcement, that Israel and Iran had agreed to a ceasefire, undermines the Greenback's status as the global reserve currency.
The Swiss Franc (CHF), on the other hand, draws support from the Swiss National Bank's (SNB) signal that it does not plan more interest rate cuts, which disappointed some investors expecting that rates might return to negative territory this year. This, in turn, acts as a headwind for the USD/CHF pair. Moreover, the overnight breakdown below the 0.8150 support backs the case for further intraday losses.
Traders, however, seem reluctant to place aggressive directional bets and opt to wait for cues about the Fed's future rate cut path. Hence, the focus remains glued to speeches from a slew of FOMC members and Fed Chair Jerome Powell's congressional testimony. Apart from this, the Conference Board's US Consumer Confidence Index would drive the USD and provide some impetus to 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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