USD/CHF strengthens above 0.8950 as US PMI data looms
- USD/CHF rebounds to near 0.8985 in Friday’s early European session.
- Trump’s trade tariffs and rising geopolitical tensions might boost the CHF and cap the upside for the pair.
- The advanced US PMI data will be in the spotlight later on Friday.
The USD/CHF pair recovers some lost ground around 0.8985 amid a modest rebound in US Dollar (USD) during the early European session on Friday. Investors brace for the preliminary US S&P Global PMI reports, which will be released later on Friday. Also, the Federal Reserve’s (Fed) Mary Daly and Philip Jefferson are set to speak later on the same day.
Fed officials in January agreed they would need to see inflation ease more before lowering interest rates further. Policymakers are concerned about the impact Trump’s tariffs would have in making that happen, according to meeting minutes released Wednesday.
Fed Chair Jerome Powell said the bank was not "in a hurry" to cut the interest rate further, given significant uncertainty about where the economy might be headed. Analysts anticipate the US central bank will likely reduce its benchmark interest rate only once in 2025, with a big chance of no rate cuts at all. This, in turn, could lift the USD against the Swiss Franc (CHF).
Trump said on Wednesday he will announce new tariffs within the next month, adding lumber and forest products to previously announced plans to impose duties on imported cars, semiconductors and pharmaceuticals. Additionally, hopes for a ceasefire between Russia and Ukraine seem to have faded in the wake of intensifying Ukrainian drone attacks on Russian Oil pumping stations. Concerns about US President Donald Trump’s trade tariffs and ongoing geopolitical tensions should lend support to the safe-haven currency like CHF.
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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