USD/CHF consolidates above mid-0.8100s; remains close to weekly high set on Thursday
- USD/CHF struggles to gain any meaningful traction amid a combination of diverging forces.
- Thursday’s SNB decision underpins the CHF and the Fed’s hawkish pause supports the USD.
- The mixed fundamental backdrop warrants some caution before placing directional bets.
The USD/CHF pair lacks a firm intraday directional bias on Friday and oscillates in a narrow band, just above mid-0.8100s through the first half of the European session. Nevertheless, spot prices, for now, seem to have stalled Thursday's retracement slide from levels just above the 0.8200 mark, or over a one-week high.
The Swiss Franc (CHF) draws some support from the Swiss National Bank's (SNB) hawkish outlook, signaling that it does not plan additional interest rate cuts. The announcement disappointed some investors expecting that rates might return to negative territory this year, which, along with rising geopolitical tensions in the Middle East, benefits the safe-haven CHF and acts as a headwind for the USD/CHF pair.
The US Dollar (USD), on the other hand, remains on the defensive, though it remains on track to register weekly gains on the back of hawkish signals from the Federal Reserve (Fed) earlier this week. In fact, the Fed retained the forecast for two rate cuts in 2025 but trimmed the outlook for rate cuts in 2026 and 2027. This acts as a tailwind for the buck and in turn, is seen acting as a tailwind for the USD/CHF pair.
Moving ahead, traders now look forward to the release of the Philly Fed Manufacturing Index and the Fed Monetary Policy Report, which might influence the USD price dynamics. Furthermore, developments surrounding the Israel-Iran conflict will drive the broader market risk sentiment and the safe-haven CHF. This should contribute to producing short-term trading opportunities around the USD/CHF pair.
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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