USD/CHF sits near monthly peak as bulls await move beyond 0.8000 amid a firmer USD
- USD/CHF touches a fresh high since January 19 during the Asian session on Monday.
- Geopolitical tensions benefit the USD’s reserve currency status and support the pair.
- Inflation concerns fuel hawkish Fed expectations and further underpin the Greenback.
The USD/CHF pair attracts fresh buyers following a modest Asian session dip to the 0.7970 area and touches a fresh high since January 19 at the start of a new week. Spot prices, however, struggle to capitalize on the strength and currently trade just below the 0.8000 psychological mark, nearly unchanged for the day.
The US Dollar (USD) continues with its relative outperformance in the wake of rising military activity in the Middle East and turns out to be a key factor acting as a tailwind for the USD/CHF pair. The US-Iran war shows signs of entering a new and more dangerous phase, with reports suggesting that the Pentagon is preparing for weeks of ground operations in Iran. Adding to this, the entry of the Iran-backed militant group in Yemen, Houthis, in the war raises the risk of a further escalation of the conflict and benefits the USD's global reserve currency status.
Meanwhile, Iran-aligned Houthis claimed two missile launches at Israel within 24 hours and warned that further attacks would follow in the coming days. Furthermore, concerns that attacks on shipping by Houthi rebels in the Bab el-Mandeb Strait could severely disrupt global trade against the backdrop of the effective closure of the Strait of Hormuz. This, in turn, pushes Crude Oil prices higher, fueling inflation fears and hawkish US Federal Reserve (Fed) expectations. The outlook provides an additional boost to the USD and supports the USD/CHF pair.
The aforementioned fundamental backdrop seems tilted firmly in favor of the USD bulls and backs the case for a further near-term appreciating move for the currency pair. However, the lack of follow-through buying warrants some caution, making it prudent to wait for a sustained strength above the 0.8000 mark before positioning for an extension of the monthly uptrend.
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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