USD/CHF holds losses near 0.7900 ahead of Swiss CPI data
- USD/CHF moves little as traders adopt caution ahead of Swiss Consumer Price Index data.
- SNB officials indicated that interest rates could be pushed into negative territory if downside risks continue to build.
- Traders expect the US Nonfarm Payrolls to increase by 110K in June, against 139K jobs added in May.
USD/CHF retraces its recent gains registered in the previous session, trading around 0.7920 during the Asian hours on Thursday. The pair maintains its position around 0.7872, the lowest since September 2011, recorded on July 1. Traders await Swiss Consumer Price Index (CPI) data to gain further impetus on the Swiss National Bank’s (SNB) policy outlook, due later in the day.
The Swiss National Bank’s (SNB) officials suggested that both negative rates and currency interventions remain on the table. In June, the SNB cut rates to 0% to address easing inflationary pressures and indicated it could push rates into negative territory if downside risks persist.
The Swiss Federal Statistical Office reported on Wednesday that Real Retail Sales remained flat at 0% year-over-year in May, falling short of market expectations of 0.8% and coming in below the previous 0.9% growth. Moreover, the SVME Purchasing Managers' Index (PMI) improved to 49.6 in June from 42.1 in May. The reading significantly surpassed market expectations of 44.0; however, the index remained below the 50-point expansion level for the 30th consecutive month.
The downside of the USD/CHF pair could be restrained as the US Dollar (USD) extends its gains for the second successive session. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, is trading at around 96.80 at the time of writing.
Traders await highly anticipated labor market data, including US Nonfarm Payrolls (NFP) and Average Hourly Earnings, due later in the day. Moreover, ISM Services PMI and S&P Global US PMI will also be eyed on Thursday.
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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