USD/CHF remains stronger above 0.7900 due to Fed hawkish tone
- USD/CHF rises as the US Dollar rebounds after the Fed held rates but signaled a more hawkish stance.
- Morgan Stanley now expects no Fed rate changes this year, abandoning forecasts for September and December cuts.
- The Swiss March KOF Leading Indicator will be released later in the day.
USD/CHF extends its gains for the third consecutive day, trading around 0.7920 during the Asian hours on Thursday. The pair advances as the US Dollar (USD) rebounds from intraday losses, holding gains after the Federal Reserve (Fed) kept rates unchanged but struck a more hawkish tone amid rising inflation concerns.
Morgan Stanley had earlier projected two 25-basis-point Fed rate cuts in September and December, but has now shifted its outlook to expect no changes through year-end. The firm points to persistently elevated inflation and recent data indicating economic resilience as key reasons for the revision.
The Federal Open Market Committee (FOMC) voted 8-4 on Wednesday to keep interest rates unchanged within the 3.5%–3.75% range, marking the first instance of four dissenting votes since October 1992. The committee emphasized that “inflation remains elevated, partly due to the recent rise in global energy prices.”
The safe-haven demand also supports the Greenback against its major peers. US President Donald Trump said the naval blockade on Iran will continue until a nuclear deal is secured, dismissing calls to reopen key routes and favoring economic pressure over military action. Iran warned of retaliation, accusing Washington of using coercion and destabilization tactics to force compliance.
ZEW data released on Wednesday showed Swiss Survey Expectations improved to -30.3 in April from -35.0 in March, a six-month low. More than half of respondents expect the outlook to remain stable over the next six months, while slightly over a third anticipate deterioration. The March KOF Leading Indicator is due later in the day.
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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