USD/CHF stalls near 0.8000 as safe-haven demand supports Swiss Franc
- USD/CHF halts its gains as the Swiss Franc stays supported amid ongoing geopolitical concerns.
- US President Trump warned to respond forcefully if Iran uses lethal force against protesters.
- The US Dollar gains as traders stay cautious ahead of the US Nonfarm Payrolls report.
USD/CHF stays calm after registering gains in the previous three successive sessions, hovering around 0.7990 during the Asian hours on Friday. The pair halts its gains as the Swiss Franc (CHF) remains supported by safe-haven demand amid ongoing geopolitical concerns. Meanwhile, the Swiss 10-year government bond yield advances to near 0.30%.
US President Donald Trump warned that the United States would respond forcefully if Iranian authorities use lethal force against protesters, amid mounting protests and international tension. Traders also await updates on US actions in Venezuela and escalating rhetoric about potentially using military force regarding Greenland.
The latest Swiss inflation data eased pressure on the Swiss National Bank (SNB) to cut rates below 0%. CPI was unchanged month-on-month (MoM) in December, beating expectations of a 0.1% decline after a 0.2% fall in November. On a year-over-year (YoY) basis, inflation rose to 0.1%, matching forecasts and up from November’s flat reading, indicating fourth-quarter inflation is likely to align with the SNB’s 0.1% projection.
SNB’s December Meeting Minutes showed policymakers saw little urgency to change policy, keeping the key rate at 0% and judging that neither tightening nor further easing was warranted. They pointed to an expected gradual rise in inflation, an improved economic outlook following US tariff cuts, and potential financial system risks associated with pushing rates below zero.
The USD/CHF pair may further appreciate as the US Dollar (USD) receives support from market caution ahead of the US Nonfarm Payrolls (NFP) report, which is expected to offer further insight into labor market conditions and the Federal Reserve’s (Fed) policy outlook. December NFP is forecast to show job gains of 60,000, down from 64,000 in November. Stronger-than-expected readings would contribute to support for the Greenback.
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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