USD/CHF steadies near 0.7900 as policy decisions by Fed, SNB loom
- USD/CHF has lost its daily gains despite the cautious sentiment surrounding the Fed’s March decision.
- Fed is expected to keep its benchmark interest rate unchanged in the 3.50%–3.75% range on Wednesday.
- The Swiss Franc may find support from safe-haven demand amid persistent geopolitical risks.
USD/CHF remains flat after paring daily gains, trading around 0.7880 during the European hours on Tuesday. The US Dollar (USD) gained ground against its peers on fading expectations for near-term Federal Reserve (Fed) interest rate cuts amid rising inflation concerns tied to the surging oil prices amid the Middle East war.
Markets widely expect the US central bank to keep its benchmark interest rate unchanged in the 3.50%–3.75% range at Wednesday’s meeting, according to the CME FedWatch Tool. If the Fed holds rates steady, it would mark the second consecutive pause after the central bank’s previous easing cycle.
However, the Greenback faced challenges as safe-haven demand diminished and oil prices eased following several tankers safely navigating the Strait of Hormuz, while major economies are expected to release petroleum reserves to help offset potential supply disruptions.
US Treasury Secretary Scott Bessent said the United States is allowing Iran to continue shipping crude through the Strait of Hormuz, while President Donald Trump is seeking support from other countries to help safeguard commercial activity in the vital waterway.
However, the Swiss Franc (CHF) may gain support from safe-haven demand amid ongoing geopolitical risks. The Middle East conflict poses a significant threat to the global economy, as it fuels inflationary pressures and increases the likelihood of higher interest rates. The Swiss central bank is expected to keep its rates unchanged at 0%.
However, the Franc’s upside may be capped after the Swiss National Bank (SNB) signaled a growing willingness to intervene in FX markets. The central bank remains concerned that sustained currency appreciation in the current risk environment could trigger deflationary pressures.
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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