USD/CHF holds above 0.8200; upside seems limited as focus remains on FOMC meeting
- USD/CHF bulls remain on the sidelines amid the lack of any meaningful USD buying interest.
- Sustained safe-haven demand underpins the CHF and also contributes to capping the major.
- Traders seem reluctant to place aggressive directional bets ahead of the key FOMC meeting.
The USD/CHF pair struggles to capitalize on a modest Asian session uptick and is currently placed near the lower boundary of its daily range amid subdued US Dollar (USD) price action. Spot prices, however, manage to hold above the 0.8200 mark as traders opt to wait for the outcome of a two-day FOMC monetary policy meeting starting later today.
The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is widely expected to leave interest rates steady. Moreover, traders have trimmed their bets that the Fed will cut rates in June following Friday's upbeat US jobs data and the better-than-expected US ISM Services PMI on Monday. Hence, the focus will be on the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. Investors will look for cues about the Fed's rate-cut path, which, in turn, will drive the USD and provide some meaningful impetus to the USD/CHF pair.
In the meantime, the heightened economic uncertainty led by US President Donald Trump's erratic trade policies fails to assist the USD in attracting any meaningful buyers. Furthermore, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and escalating conflicts in the Middle East overshadow the recent optimism led by signs of easing US-China trade tensions. This, in turn, is seen lending some support to the safe-haven Swiss Franc (CHF) and contributes to capping the upside for the USD/CHF pair. Bearish trades, however, seem reluctant ahead of the key central bank event risk.
Hence, it will be prudent to wait for a sustained break and acceptance below the 0.8200 round figure before confirming that the recent recovery from the 0.8040 region, or the lowest level since September 2011 touched last month, has run out of steam. On the flip side, bulls might wait for a move beyond the 0.8300-0.8330 congestion zone before positioning for any further near-term appreciating move.
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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