- USD/CHF drifts lower for the third straight day amid the prevalent USD bearish sentiment.
- Rising September Fed rate cut bets keep the USD depressed near a one-and-a-half-week low.
- Trade uncertainties and a positive risk tone undermine the CHF and lend support to the pair.
The USD/CHF pair trades with a negative bias for the third consecutive day, though it lacks follow-through selling amid mixed fundamental cues. Spot prices manage to hold above the weekly low through the Asian session on Thursday and currently trade just above mid-0.8000s, down 0.10% for the day.
The US Dollar (USD) languishes near a one-and-a-half week low amid the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle in September. The bets were reaffirmed by the weaker-than-expected US Nonfarm Payrolls (NFP) report on Friday and Tuesday’s disappointing release of the US ISM Services PMI. This keeps the US Treasury bond yields and continues to weigh on the buck, which, in turn, is seen exerting some pressure on the USD/CHF pair.
However, a combination of factors holds back traders from placing aggressive bullish bets around the Swiss Franc (CHF) and helps limit the downside for the currency pair. Switzerland faces a crippling 39% tariff on its exports to the US. Moreover, sources familiar with the matter said that US officials rejected Swiss President Karin Keller-Sutter’s demand for a tariff rate of 10%. This, along with a positive risk tone, undermines the safe-haven CHF and supports the USD/CHF pair.
Hence, it will be prudent to wait for a subsequent slide below the weekly trough, around the 0.8025 region, before positioning for any further depreciating move. Traders now look forward to the release of the US Weekly Initial Jobless Claims data for some impetus later during the North American session. Apart from this, speeches from influential FOMC members will drive the USD, which, along with the broader risk sentiment, could produce trading opportunities around the USD/CHF pair.
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.
