USD/CHF remains depressed amid broadly weaker USD; manages to hold above 0.8200 mark
- USD/CHF attracts sellers for the second straight day and is pressured by a combination of factors.
- Aggressive Fed rate cut bets weigh on the USD while reviving safe-haven demand benefits the CHF.
- Bears, however, seem reluctant to place fresh bets ahead of the crucial two-day FOMC meeting.
The USD/CHF pair struggles to capitalize on Friday's upbeat US jobs data-inspired bounce from the 0.8200 neighborhood and attracts fresh sellers at the start of a new week. Spot prices, however, remain confined in a familiar range held over the past two weeks or so and currently trade around the 0.8235-0.8230 region, down nearly 0.50% for the day.
The better-than-expected release of the closely-watched US Nonfarm Payrolls (NFP) report forced investors to push back their expectations for a 25 basis points (bps) rate cut by the Federal Reserve (Fed) to July from June. The US Dollar (USD), however, remains depressed below a multi-week high touched last Thursday amid heightened economic uncertainty on the back of US President Donald Trump's tariffs. Apart from this, reviving safe-haven demand benefits the Swiss Franc (CHF) and contributes to the offered tone surrounding the USD/CHF pair.
Despite hopes for the potential de-escalation of tensions between the US and China, Trump's rapidly shifting stance on trade policies keeps investors on the edge. Apart from this, the protracted Russia-Ukraine war and a fresh escalation of conflicts in the Middle East keep geopolitical risks in play. This, in turn, tempers investors' appetite for riskier assets, which is evident from a weaker tone around the equity markets and supports the CHF. Bears, however, seem reluctant to place fresh bets around the USD/CHF pair ahead of this week's key central bank event risk.
The Fed is scheduled to announce its policy decision at the end of a two-day meeting on Wednesday. Investors will look for cues about the central bank's further rate-cut path, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the USD/CHF pair. In the meantime, Monday's release of the US ISM Services PMI will be looked upon to grab short-term opportunities later during the early North American session.
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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