USD/CHF nears one-week high amid stronger US Dollar
- USD/CHF climbs toward a one-week high as the US Dollar strengthens.
- Swiss CPI remains subdued, reinforcing expectations of steady SNB policy.
- Markets await key US releases, including core PCE and Q4 GDP.
The Swiss Franc (CHF) edges lower against the US Dollar (USD) on Tuesday, as a firmer Greenback underpins USD/CHF. At the time of writing, the pair trades near 0.7729, hovering close to a one-week high.
The Greenback gains traction after last week’s US labor market and inflation data tempered expectations for early policy easing by the Federal Reserve (Fed). The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading near 97.40, up around 0.32%.
Meanwhile, the latest economic releases lent additional support to the USD. The NY Empire State Manufacturing Index rose to 7.1 in February, beating market expectations of 6.0, though easing slightly from the previous reading of 7.7. The ADP Employment Change four-week average increased to 10.3K, up from a revised 7.8K (previously 6.5K).
On the monetary policy front, traders have scaled back expectations for a near-term Fed rate cut after stronger-than-expected US Nonfarm Payrolls (NFP) data eased concerns about labor market deterioration. Notably, the Unemployment Rate unexpectedly declined to 4.3% from 4.4%.
Even so, softer inflation data have left the door open for the central bank to resume rate cuts in the second half of the year. According to the CME FedWatch Tool, interest rate futures currently point to June as the most likely timing for the first rate cut.
Attention now turns to key economic releases scheduled for later this week. The Fed's Meeting Minutes are due on Wednesday, followed by Friday’s core Personal Consumption Expenditures (PCE) Price Index — the Fed’s preferred inflation gauge — and the advance estimate of fourth-quarter US Gross Domestic Product (GDP), which could offer fresh guidance on the monetary policy outlook.
On the other hand, reduced safe-haven demand is also capping the upside in the CHF. Signs of diplomatic progress emerged after a second round of high-level nuclear talks between the United States and Iran held earlier on Tuesday in Geneva, easing fears of a potential military escalation.
Iran’s Foreign Minister said that both sides had “reached an understanding on the main principles” with the US. He added that “a new window of opportunity has opened,” expressing hope that the negotiations would lead to a sustainable and negotiated solution.
In Switzerland, the latest inflation data showed Consumer Price Index (CPI) rising just 0.1% in January.. With inflation near the lower end of the Swiss National Bank’s (SNB) 0-2% target range, markets expect policymakers to keep rates unchanged at the March meeting and maintain a steady stance through 2026.
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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