USD/CHF holds gains near 0.8850 as US Dollar advances due to prevailing market caution
- USD/CHF advances as the US Dollar finds support amid heightened market caution ahead of Trump's tariff announcement on April 2.
- The Greenback benefits as 2-year and 10-year US bond yields rise to 4.01% and 4.33%, respectively.
- The Swiss Franc gained ground amid escalating geopolitical tensions in the Middle East.
The USD/CHF pair rebounds after two consecutive days of losses, trading around 0.8840 during Asian hours on Wednesday. The pair strengthens as the US Dollar (USD) finds support amid prevailing market caution ahead of US President Donald Trump's upcoming tariff announcement on April 2.
The US Dollar Index (DXY), which measures the USD against six major currencies, recovers from recent losses and hovers around 104.30. The Greenback gains momentum as US Treasury yields rise, with the 2-year and 10-year bond yields standing at 4.01% and 4.33%, respectively, at the time of writing.
Hawkish remarks from Federal Reserve (Fed) Governor Adriana Kugler further bolster the USD. On Tuesday, Kugler reiterated that the Fed's monetary policy remains restrictive and appropriately positioned. She also noted that progress toward the 2% inflation target has slowed since last summer, highlighting the recent rise in goods inflation as "unhelpful."
Swiss National Bank (SNB) reported on Monday that Switzerland’s current account surplus narrowed to CHF 9.8 billion in Q4 2024, down from CHF 13.8 billion in the same period the previous year. Meanwhile, the services' account deficit widened to CHF 9.4 billion from CHF 8.7 billion, while the goods account surplus grew to CHF 30 billion from CHF 27.9 billion a year earlier.
Additionally, geopolitical tensions in the Middle East could drive safe-haven demand for the Swiss Franc (CHF). Israel has resumed airstrikes in Gaza following a nearly two-month ceasefire with Hamas. Prime Minister Benjamin Netanyahu has vowed to escalate military operations to secure the release of hostages and dismantle Hamas.
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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