USD/CHF gains ground above 0.7950 amid US Dollar strength
- USD/CHF edges higher to 0.7960 in Wednesday’s early European session.
- A surge in the US Unemployment Rate kept pressure on the Fed to rescue the labor market by cutting interest rates.
- Uncertainty and risk-off sentiment could boost the safe-haven asset like the Swiss Franc.
The USD/CHF pair trades in positive territory around 0.7960 during the early European session on Wednesday, bolstered by a rebound in the US Dollar (USD). However, the prospect of the US Federal Reserve (Fed) interest rate cut next year could weigh on the Greenback against the Swiss Franc (CHF). The Swiss National Bank (SNB) Quarterly Bulletin for the fourth quarter is due later in the day. Also, New York Fed President John Williams and Atlanta Fed President Raphael Bostic are set to speak.
Data released on Tuesday showed the labor market remained soft, leaving investors on edge about when the next rate cut is likely to come. The US Nonfarm Payrolls (NFP) rose by 64,000 in November, compared to a fall of 105,000 in October. This figure came in better than the estimates of 50,000. Meanwhile, the Unemployment Rate in the US climbed to 4.6% in November from 4.4% in October.
Fed officials are split over whether more easing of monetary policy is needed next year. The median Fed official penciled in just one reduction in 2026, but some policymakers see no further cuts.
Uncertainty and the risk of US military action in Venezuela could boost the safe-haven flows, supporting the Swiss Franc. Late Tuesday, US President Donald Trump ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela, per Reuters. His action came after the Trump administration detained a supertanker last week, and Washington has ordered a huge buildup of US military forces off the Venezuelan coast in an operation said to target drug smuggling.
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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