USD/CHF climbs above 0.8150 after rebounding from lowest since September 2011
- USD/CHF rebounds from 0.8099, the lowest since September, recorded on Friday.
- The Swiss Franc may regain its ground due to safe-haven demand amid escalating US-China-trade tensions.
- Fed’s Kashkari stated that the economic impact of Trump’s trade war would hinge on how trade uncertainties are resolved.
The USD/CHF pair edges higher in early Asian trading on Monday, hovering around the 0.8170 mark after recording losses in the past two consecutive sessions. Market participants are eyeing the release of Switzerland’s Producer and Import Prices for March, due later in the day.
However, the upside of the USD/CHF pair could be restrained as the Swiss Franc (CHF) continues to draw support from safe-haven demand amid escalating trade tensions between the United States and China. The renewed friction has reignited fears of a global recession, prompting investors to move away from US assets.
Late last week, a series of economic indicators added to the market’s cautious tone. The University of Michigan’s Consumer Sentiment Index fell to 50.8 in April, while one-year inflation expectations jumped to 6.7%. On the inflation front, the US Producer Price Index (PPI) rose 2.7% year-over-year in March, easing from 3.2% in February. Core inflation also slowed to 3.3%. Meanwhile, initial jobless claims ticked up to 223,000, though continuing claims declined to 1.85 million—offering a mixed view of the labor market.
Adding to the uncertainty, Minneapolis Federal Reserve President Neel Kashkari, in an interview on CBS's Face the Nation on Sunday, described the trade dispute’s impact as one of the most significant blows to confidence in the past decade—second only to the onset of the COVID-19 pandemic in March 2020. He emphasized that the extent of the economic fallout hinges on how quickly trade tensions are resolved. Moreover, the New York Fed’s Williams and the Boston Fed’s Collins warned of rising trade-related inflation risks and a likely downturn in growth.
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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