USD/CHF moves below 0.7750 as traders expect SNB to keep rates unchanged
- USD/CHF declines as traders await fresh signals on the Swiss National Bank’s monetary policy outlook.
- US Nonfarm Payrolls are expected to show labor market stabilization in January, with 70,000 job gains and unemployment steady at 4.4%.
- Markets expect the Fed to hold rates in March, with cuts likely in June and possibly September.
USD/CHF extends its losses for the second successive session, trading around 0.7730 during the European hours on Monday. Traders are looking for fresh signals on the Swiss National Bank’s (SNB) monetary policy outlook.
The SNB is expected to keep interest rates at 0% in the near term, as policymakers remain wary of persistently weak inflation pressures. SNB Chairman Martin Schelegl said his primary concern remains inflation and price stability, adding that the bank is doing everything necessary to safeguard them, according to Reuters.
The USD/CHF pair weakens as the US Dollar (USD) comes under pressure, with traders turning cautious ahead of key economic releases that were delayed by the partial government shutdown.
The January jobs report, due on Wednesday, is expected to point to stabilization in the labor market, with US Nonfarm Payrolls forecast to rise by 70,000, while the Unemployment Rate is seen holding steady at 4.4%. Meanwhile, the delayed January consumer price index data is scheduled for release on Friday.
Markets widely expect the Fed to leave interest rates unchanged in March, with rate cuts likely in June and possibly September. San Francisco Fed President Mary Daly said on Friday that the economy may stay in a low-hiring, low-firing phase, though it could shift toward no hiring and higher layoffs.
Fed Governor Phillip Jefferson said future policy decisions will be guided by incoming data and assessments of the economic outlook, adding on Friday that the labor market is gradually stabilizing. Meanwhile, Atlanta Fed President Raphael Bostic noted that inflation has remained elevated for too long, stressing in a Bloomberg interview on Friday that the Fed cannot lose sight of inflationary risks.
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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