Swiss Franc gains ground as easing US Yields pressures Greenback
- US 10-year yield fell to 4.93% as lower crude prices helped ease persistent inflation fears.
- Crude prices dropped following Saudi pipeline restoration efforts and upcoming US-Gulf leader meetings.
- Fed Chair Warsh warned inflation remains high, boosting October rate hike expectations to 53.1%.
USD/CHF extends its losses for the second successive day, trading around 0.8230 during Asian hours on Friday. The pair depreciates as the US Dollar (USD) faced challenges from falling oil prices, which helped ease broader inflation concerns.
Easing inflation concerns pulled US Treasury yields back from their recent multi-year highs, with the benchmark 10-year yield falling to around 4.93% after briefly breaching the 5.0% mark earlier in the week.
Crude prices declined following news that Saudi Arabia was actively working to restore flows through its East-West pipeline, while market attention also turned toward upcoming meetings between US President Donald Trump and Gulf leaders.
However, downside pressure on the Greenback could be restrained following hawkish remarks from Fed Chair Kevin Warsh. Warsh stated that inflation has remained too high for too long and emphasized that recent summer economic data failed to show meaningful structural improvement. In the wake of his comments, market expectations adjusted rapidly; the CME FedWatch tool indicated that traders are now pricing in a 53.1% probability of another rate hike at the Federal Reserve's October meeting, up from 44% the previous day.
USD/CHF rally pauses as UOB flags consolidation below key resistance
Strategists at UOB Group note that the latest leg higher in USD/CHF has unfolded broadly in line with their earlier guidance. In their “most recent narrative from Tuesday (15 Sep, spot at 0.8175),” they had highlighted that USD “must break and hold above 0.8205 before a move to 0.8245 can be expected.” The pair subsequently “broke above both levels as it surged to 0.8265,” confirming the strength of the near-term upswing.
UOB cautions, however, that “while momentum remains strong, it is too early to tell whether it is sufficient for USD to break above 0.8300.” On the downside, they point out that “a breach of 0.8185 (‘strong support’ level was at 0.8145 yesterday) would mean that the upside momentum from late last week … is easing,” suggesting that any failure to hold above that support would signal a loss of bullish impetus in the 1–3 week horizon.
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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