USD/CHF softens below 0.9050 as traders await FOMC Minutes
- USD/CHF weakens to around 0.9030 in Wednesday’s early European.
- Global geopolitical stress boosts the safe-haven flows, supporting the CHF.
- Fed’s Daly said the central bank should keep short-term borrowing costs where they are until the progress is more visible.
The USD/CHF pair softens to near 0.9030 during the early European session on Wednesday. Tension-filled negotiations on the Russia-Ukraine conflict boost the safe-haven flows, benefiting the Swiss Franc (CHF). Traders will take more cues from the FOMC Minutes, which will be published later on Wednesday.
Ukraine President Volodymyr Zelenskiy said no peace deal could be made behind his back, per Reuters. Zelenskiy decided to postpone his visit to Saudi Arabia planned for Wednesday until March 10 to avoid giving "legitimacy" to the United States-Russia meetings. Investors will closely watch the developments surrounding the Russia-Ukraine peace talks. Any signs of escalating tensions between the two countries could boost the safe-haven currency like the CHF and create a headwind for the pair.
Data released by the Federal Reserve Bank of New York on Tuesday showed that the NY Empire State Manufacturing Index climbed to 5.7 in February from a fall of 12.6 in January. Meanwhile, San Francisco Fed President Mary Daly said on Tuesday that prospects of further rate cuts in 2025 remain uncertain despite an overall positive lean to US economic factors.
Market players brace for remarks by Fed officials later this week to gather more clues about the path ahead for US interest rates. Any hawkish comments from Fed policymakers could underpin the Greenback against the CHF in the near term.
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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