Swiss Franc remains stronger following SVME PMI data
- SVME – PMI rose to 56.7 in October, against expectations of remaining at 55.3.
- The US Dollar fell as Middle East diplomatic efforts reduced safe-haven demand, despite remaining US-Iran conflict fears.
- Traders price in a 75% chance of a December rate hike following resilient US economic and inflation data.
USD/CHF depreciates after posting minor gains in the previous trading day, hovering around 0.8220 during the European hours on Monday. The pair remains subdued as the Swiss Franc (CHF) holds gains following the release of domestic economic data.
SVME - Purchasing Managers' Index rose to 56.7 in October, against expectations of remaining at 55.3. Swiss Real Retail Sales came in at 1.6% year-over-year growth in September, from the previous 3.9% (revised from 3.2%). Market expectations were 3%.
The USD/CHF pair depreciates as the US Dollar (USD) loses ground amid easing safe-haven demand, driven by ongoing diplomatic efforts to end the Middle East conflict despite lingering fears of renewed US military action against Iran. Qatari and Iranian officials continued discussions for a third consecutive day, working toward an agreement to end the war ahead of the US midterm elections.
However, the US Dollar could regain ground on rising expectations for a Federal Reserve rate hike. According to the CME FedWatch Tool, traders are pricing in roughly a 75% chance of a December rate increase, boosted by recent US macroeconomic data pointing to economic resilience and persistent inflation.
Traders await key upcoming events, including the US Nonfarm Payrolls (NFP) report and ISM manufacturing and services data. Remarks from several Federal Reserve officials scheduled throughout the week are also expected to offer further guidance on the central bank's monetary policy path.
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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