USD/CHF declines to near 0.8230 as US Dollar falls further after US NFP data
- USD/CHF slumps to near 0.8230 as the US Dollar extends its initial losses despite the release of the upbeat US NFP data for April.
- US President Trump has insisted Fed to lower interest rates through a post on Truth.Social.
- Investors await the Swiss CPI data for April, which will be released on Monday.
The USD/CHF pair trades lower around 0.8230 during the North American session on Friday. The Swiss Franc pair weakens as the US Dollar extends its correction after the release of the United States (US) Nonfarm Payrolls (NFP) data for April. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to near 99.40.
The initial reaction from the US Dollar was positive after the release of the US official employment data, which came in better than expected. Technically, the US Dollar should have attracted more bids as upbeat employment data limits the scope of monetary policy easing by the Federal Reserve (Fed). However, it has slid further as US President Donald Trump has insisted that the Fed should lower interest rates.
The NFP report showed that the economy added 177K fresh workers, significantly higher than estimates of 130K, but slightly lower than March’s reading of 185K. The Unemployment Rate remained steady at 4.2%, as expected.
US President Trump has stated through a post on Truth.Social that there are plenty of compelling reasons for the Fed to start reducing interest rates. “Gasoline just broke $1.98 a Gallon, the lowest in years, groceries (and eggs!) down, energy down, mortgage rates down, employment strong, and much more good news, as Billions of Dollars pour in from Tariffs. Just like I said, and we’re only in a transition stage, just getting started!!! Consumers have been waiting for years to see pricing come down. No inflation, the Fed should lower its rate!!! Trump wrote.
In mid-April, Donald Trump criticized Fed Chair Jerome Powell for not lowering interest rates and warned that the economy could face a downturn if they are not reduced immediately. Investors saw the event as an assault on the Fed’s autonomy, which led to a sharp decline in the US Dollar, with investors doubting its safe-haven status.
Meanwhile, the Swiss Franc (CHF) exhibits a mixed performance against its peers ahead of the Swiss Consumer Price Index (CPI) data for April, which will be released on Monday. Month-on-month Swiss CPI is estimated to have grown by 0.2% after remaining flat in March.
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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