USD/CHF consolidates above 0.7900 as a weaker USD offsets receding safe-haven demand
- USD/CHF struggles for a firm intraday direction amid a combination of diverging forces.
- The Fed uncertainty keeps the USD depressed and acts as a headwind for spot prices.
- The trade optimism undermines the safe-haven CHF and lends support to the major.
The USD/CHF pair enters a bearish consolidation phase during the Asian session on Thursday and oscillates in a range around the 0.7920 area, close to a three-week low touched the previous day.
The US Dollar (USD) continues with its struggle to attract any meaningful buyers and languishes near a two-and-a-half week low, which, in turn, is seen as a key factor acting as a headwind for the USD/CHF pair. Investors seem uncertain about the likely timing and pace of interest rate cuts by the Federal Reserve (Fed). Moreover, fears that the central bank's independence could be under threat from mounting political interference keep the USD bulls on the defensive.
In fact, US President Donald Trump has been personally attacking Fed Chair Jerome Powell for not lowering borrowing costs. Trump has also repeatedly called for the central bank chief's resignation. Meanwhile, US Treasury Secretary Scott Bessent said that the new Fed Chair nominee is likely to be announced in December or January. This adds a layer of uncertainty and fails to assist the USD to register any meaningful recovery, in turn, weighing on the USD/CHF pair.
That said, the latest trade optimism remains supportive of a positive risk tone and holds back traders from placing aggressive bullish bets around the safe-haven Swiss Franc (CHF). Trump announced late Tuesday that his administration had reached a trade deal with Japan, while reports suggest that the US and the European Union are heading towards a 15% trade deal. This is seen as a key factor that helps limit the downside for the USD/CHF pair, at least for now.
Traders now look forward to the release of flash PMIs, which should provide a fresh insight into the global economic health and drive the broader risk sentiment. Furthermore, the European Central Bank (ECB) policy decision could infuse volatility in the markets and influence safe-haven assets. Apart from this, the US Weekly Jobless Claims and New Home Sales data might contribute to producing trading opportunities around the USD/CHF pair later this 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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