USD/CHF dips to 0.7980 area amid reviving safe-haven demand, softer USD
- USD/CHF struggles to build on Monday’s positive move to a one-week top.
- Tariff jitters weigh on investors’ sentiment and benefit the safe-haven CHF.
- The emergence of fresh USD selling further exerts pressure on spot prices.
The USD/CHF pair attracts fresh sellers during the Asian session on Tuesday and reverses a part of the previous day's strong move higher to a one-week top, around the 0.8000 psychological mark. Spot prices slide to the 0.7960 area, or a fresh low in the last hour amid a combination of negative factors.
The global risk sentiment takes a hit in the wake of fresh concerns over US President Donald Trump's trade tariffs. In fact, Trump released the first batch of letters outlining higher tariffs against a slew of major economies and also threatened that any Country aligning with the anti-American policies of BRICS will be charged an additional 10% tariff. This, in turn, tempers investors' appetite for riskier assets and benefits the Swiss Franc's (CHF) safe-haven status, which, along with the emergence of some US Dollar (USD) selling, exerts downward pressure on the USD/CHF pair.
Against the backdrop of US fiscal concerns, worries about the potential economic fallout from Trump's trade tariffs fail to assist the USD to build on Monday's positive move. The downside for the USD, however, seems limited amid expectations that the Federal Reserve will keep interest rates elevated in anticipation of worsening inflation as a result of higher import taxes and a still resilient US labor market. This might hold back traders from placing aggressive bearish bets around the USD/CHF pair and help limit losses in the absence of any relevant economic releases.
The market focus, meanwhile, remains glued to the FOMC meeting minutes, due on Wednesday. Market participants will look for cues about the Fed's rate-cut path, which, in turn, will play a key role in influencing the near-term USD price dynamics. Apart from this, the broader risk sentiment should influence the safe-haven CHF and contribute to providing some meaningful 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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