EUR/CHF slides toward a four-week low as trade tensions lift the Swiss Franc
- EUR/CHF slides toward multi-week lows as renewed US-EU trade tensions drive demand for the Swiss Franc.
- Risk-averse mood supports CHF, though upbeat ZEW surveys limit deeper Euro losses.
- Focus shifts to SNB Chairman Schlegel and ECB speakers later on Tuesday.
The Swiss Franc (CHF) attracts fresh buyers against the Euro (EUR) on Tuesday, as renewed US-EU trade war concerns weigh on risk appetite and lift demand for defensive currencies. At the time of writing, EUR/CHF trades around 0.9265, hovering near its lowest level since December 26.
Markets have turned risk-averse following fresh tariff threats from US President Donald Trump toward several European nations over the Greenland issue. The escalation has revived fears of a broader trade conflict, after European leaders said they are prepared to take countermeasures.
Against this backdrop, the Swiss Franc is firm across the board. However, EUR/CHF is struggling to extend its downside momentum, as a stronger-than-expected ZEW Economic Sentiment survey is offering some support to the Euro and tempering follow-through selling.
Data released earlier on Tuesday showed that Eurozone ZEW Economic Sentiment improved to 40.8 in January, beating expectations of 35.2 and rising from 33.7 in December, pointing to improving investor confidence across the bloc.
In Germany, the ZEW Economic Sentiment Index climbed to 59.6, well above forecasts of 50 and the previous 45.8 reading. At the same time, the ZEW Current Situation Index improved to -72.7 from -81 and better than the expected -75.5.
In Switzerland, data from the Federal Statistical Office showed that Producer and Import Prices fell 0.2% MoM in December, coming in below forecasts for a 0.2% increase and following a -0.5% decline in the previous month. On a yearly basis, prices were down 1.8%, after falling 1.6% in November.
Looking ahead, market participants will be watching for comments from Swiss National Bank (SNB) Chairman Martin Schlegel, who is due to speak later on Tuesday at the World Economic Forum in Davos. Attention will then turn to remarks from European Central Bank (ECB) Governing Council member Joachim Nagel, followed by a speech from ECB President Christine Lagarde.
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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