USD/CHF edges higher to above 0.7950 on modest US dollar strength
- USD/CHF strengthens to near 0.7965 in Friday’s early European session.
- Trump is reported to be shifting to dealmaking mode on China.
- Concerns over the Fed's independence might drag the US Dollar lower.
The USD/CHF pair trades on a positive note around 0.7965 during the early European session on Friday. Optimism surrounding US trade deals provides some support to the Greenback. However, the upside for the pair might be limited as markets might turn cautious ahead of crucial events next week.
The Wall Street Journal (WSJ) reported on Friday that US President Donald Trump is now pursuing dealmaking with China. Trump might shift from a strategy of pressure to negotiation, with the goal of securing an economic agreement that will increase US access to Chinese markets, particularly in business and technology. These positive developments ease fears of trade tensions between the world’s two largest economies and undermine the safe-haven currency, like the Swiss Franc (CHF).
Late Thursday, Trump added to the pressure on Fed Chair Jerome Powell with a visit to the Fed's Washington offices. Trump and Powell discussed the costs of ongoing renovations at the Fed's headquarters. Any surprise move that escalates tensions between the administration and the US central bank could drag the US Dollar (USD) lower against the CHF in the near term.
The US Durable Goods Orders for June will be released later on Friday. All eyes will be on the Federal Open Market Committee (FOMC) policy meeting next week. The FOMC is anticipated to leave the rate unchanged at its July meeting as policymakers prefer to wait for clarity on the expected impact of tariffs on inflation. Financial markets have priced in nearly a 60% chance of a 25 basis points (bps) September rate cut, according to the CME FedWatch tool.
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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