USD/CHF trades weakly near 0.7940 even as US signs more trade deals
- USD/CHF faces selling pressure as the US Dollar underperforms its peers.
- The US Dollar declines even as Washington closes trade deals with Japan and the Philippines.
- Investors await SNB Schlegel’s speech and key US data.
The USD/CHF seems vulnerable near an over two-week low around 0.7940 during the late Asian trading session on Wednesday. The Swiss Franc pair faces selling pressure as the US Dollar (USD) underperforms despite Washington announcing that it has signed trade deals with Japan, and Philippines.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto losses near the two-week low around 97.45.
US President Donald Trump confirmed through a post on Truth.Social that trades deals with Japan and the Philippines have signed. Trump wrote that Washington will charge 15% and 19% tariffs on imports from Japan and the Philippines.
Theoretically, the scenario should have been favorable for the US Dollar, given that Japan is one of key trading partners of the US.
On the domestic front, investors await preliminary US S&P Global Purchasing Managers’ Index (PMI) data for July and the Durable Goods Orders data for June, which are scheduled to be released on Thursday and Friday, respectively.
In the Swiss region, investors will closely monitor speech from Swiss National Bank (SNB) Chairman Martin Schlegel, which is scheduled for Thursday. Schlegel will likely provide cues about the monetary policy outlook for the remainder of the year.
The SNB reduced its interest rates to zero in the monetary policy meeting in June to counter downside inflation risks.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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