USD/CHF weakens below 0.8850 as investors await US NFP data
- USD/CHF faces some selling pressure to near 0.8820 in Friday’s early European session, losing 0.13% on the day.
- Trump expanded exemptions to Canada and Mexico tariffs.
- The concerns over a looming slowdown in the US economy weigh on the US Dollar.
The USD/CHF pair extends the decline to around 0.8820 during the early European session on Friday, pressured by the weaker US Dollar (USD). The markets turn cautious amid an escalating trade war initiated by the United States. Later on Friday, traders await the highly anticipated US Nonfarm Payrolls (NFP) for February.
The Greenback edges lower to a three-month low against the Swiss Franc (CHF) after US President Donald Trump on Thursday issued an executive order exempting goods from both Canada and Mexico under a North American trade agreement, known as USMCA, two days after imposing them.
Investors are concerned about the potential impact of the Trump administration's tariffs on the US economy. This, in turn, boosts the safe-haven currency like the CHF and acts as a headwind for USD/CHF.
The concerns over a looming slowdown in the US economy contribute to the USD downside. Investors will closely monitor the release of the US NFP data later on Friday for additional insights into the Federal Reserve’s (Fed) monetary policy.
Economists predict that 160,000 jobs will be added in February, while the Unemployment Rate is expected to hold steady at 4.0%. If the report shows a stronger-than-expected outcome, this could help limit the USD’s losses.
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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