USD/CHF remains steady near 0.9050 ahead of Swiss Trade Balance data
- USD/CHF moves little as traders await economic releases seeking fresh impetus.
- US Gross Domestic Product Annualized (Q4) could report a 2.6% growth, down from the previous 3.1%.
- Swiss Trade Balance and the KOF Leading Indicator are scheduled to be released on Thursday.
USD/CHF steadies after two consecutive days of gains, trading around 0.9070 during the Asian session on Thursday. This decline is mainly attributed to a weaker US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback against six major currencies, hovers slightly below the 108.00 mark at the time of writing.
Traders are awaiting the release of the US fourth-quarter Gross Domestic Product (GDP) growth data, scheduled for Thursday. The market consensus expects a slowdown in annualized GDP growth, with a forecast of 2.6%, down from the previous 3.1%. Inflationary concerns persist, with the Q4 GDP Price Index expected to rise to 2.5%, up from 1.9%.
The downside for USD/CHF may be limited, as the USD could strengthen following the Federal Reserve's (Fed) cautious approach to monetary policy. The Fed maintained its overnight borrowing rate at 4.25%-4.50% during its January meeting on Wednesday, as widely anticipated. This decision follows three consecutive rate cuts since September 2024, totaling a one-percentage-point reduction.
The Fed's hawkish stance was further reinforced by its decision to remove language suggesting confidence in inflation reaching its 2% target. Fed Chair Jerome Powell also emphasized in the press conference that the central bank would require "real progress on inflation or some weakness in the labor market" before considering any policy changes.
In Switzerland, the ZEW Survey Expectations for January increased to 17.7, reversing the previous month's decline to -20, according to data released on Wednesday. Traders are also awaiting the Swiss Trade Balance for December and the KOF Leading Indicator for January, both scheduled for release on Thursday.
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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