USD/CHF remains above 0.7900 as US Dollar steadies due to positive trade developments
- USD/CHF maintains position as market sentiment improves due to positive developments on trade deals.
- Trump announced a trade agreement with Japan that imposes a 15% tariff on Japanese exports to the US.
- The Swiss Franc may receive support as the SNB is expected to delay further easing of monetary policy.
USD/CHF holds ground after registering losses in the previous three successive sessions, trading around 0.7920 during the European hours on Wednesday. The pair holds ground as the US Dollar (USD) remains steady amid improving market sentiment, driven by latest trade developments.
United States (US) President Donald Trump announced a trade deal with Japan that includes a 15% tariff on Japanese exports to the US. As part of the agreement, Japan will invest $550 billion in the US and open its markets to key American products. President Trump also said during a meeting with the Philippines' President Bongbong Marcos on Tuesday that they are close to securing a deal.
However, the US Dollar may face challenges due to ongoing concerns over the Fed’s independence. Trump took the opportunity to renew his criticism of Federal Reserve (Fed) Chair Jerome Powell, saying, “Powell’s going to be out soon anyway; he’s got to be out in eight months.” Trump argued that the economy remains strong and claimed the Fed is keeping interest rates too high, insisting, “We should be at 1%.”
The Swiss National Bank (SNB) is expected to delay further easing of monetary policy following the recent Swiss inflation report for June. The annual Swiss Consumer Price Index (CPI) inched up 0.1% in June, while the monthly CPI increased 0.2%. Traders expect the Swiss central bank to keep the interest rate unchanged at 0% in September, with many market analysts projecting it will likely stay at that level through 2026.
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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