USD/CHF bounces off two-week low, down a little above mid-0.7900s
- USD/CHF drifts lower for the third consecutive day on Thursday amid sustained USD selling bias.
- Fed rate cut bets, US-China trade tensions, and the US government shutdown weigh on the buck.
- A positive risk tone undermines demand for the safe-haven CHF and helps limit losses for the pair.
The USD/CHF pair continues losing ground for the third straight day – also marking the fourth day of a negative move in the previous five – and drops to an over two-week low during the Asian session on Thursday. Spot prices, however, manage to recover a few pips from the daily through and currently trade just above mid-0.7900s, still down 0.15% for the day.
The US Dollar (USD) selling bias remains unabated for the third straight day amid concerns about economic risks stemming from the prolonged US shutdown and renewed US-China trade tensions. Furthermore, dovish Federal Reserve (Fed) expectations turn out to be another factor undermining the Greenback, which, in turn, is seen as a key factor exerting some downward pressure on the USD/CHF pair.
The Senate once again failed to advance the House-passed GOP bill to fund the government for a ninth time on Wednesday, with the shutdown, which started on October 1, stretching into a third week. Meanwhile, US-China tensions reignited in recent weeks after the US broadened tech restrictions and China outlined tighter export controls on rare earths, further fueling concerns about an all-out trade war.
Meanwhile, traders have been pricing in the possibility that the US central bank will lower borrowing costs by 25-basis-points (bps) each at the October and December policy meetings. The bets were reaffirmed by Fed Chair Jerome Powell's dovish tone on Tuesday, saying that the labor market remained mired in its low-hiring, low-firing doldrums through September. This, in turn, favors the USD bears.
However, a generally positive tone around the equity markets holds back traders from placing aggressive bullish bets around the safe-haven Swiss Franc (CHF) and assists the USD/CHF pair to attracts some buyers near the 0.7935-0.7930 region. Market participants now look forward to speeches from a slew of influential FOMC members for a fresh impetus later during the 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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