USD/CHF trade with mild negative bias below 0.8300; downside seems cushioned
- USD/CHF ticks lower on Thursday and snapped a two-day winning streak to a nearly two-week high.
- The uncertainty over Trump’s trade policies and Fed rate cut bets weigh on the USD and the pair.
- A positive risk tone undermines demand for the safe-haven CHF and limits losses for spot prices.
The USD/CHF pair fails to capitalize on a two-day-old recovery from the lowest level since September 2011 and attracts some sellers during the Asian session on Thursday. Spot prices, however, lack bearish conviction and currently trade just below the 0.8300 mark, down 0.25% for the day and close to a nearly two-week high touched on Wednesday.
Despite easing fears about the Federal Reserve's (Fed) independence, the US Dollar (USD) bulls remain on the sidelines amid the weakening confidence in the US economy on the back of the uncertainty about US President Donald Trump's trade policies. Apart from this, the prospects for more aggressive policy easing by the Fed fail to assist the USD to build on this week's bounce from a multi-year low, which, in turn, acts as a headwind for the USD/CHF pair.
Meanwhile, US Treasury Secretary Scott Bessent tempered market expectations for a quick resolution to the US-China trade standoff. However, signs of easing trade tensions between the world's two largest economies remain supportive of a generally positive tone around the equity markets. This is seen undermining demand for the safe-haven Swiss Franc (CHF) and lending some support to the USD/CHF pair, warranting some caution for bearish traders.
Traders now look forward to the US economic docket – featuring the release of the usual Weekly Initial Jobless Claims, Durable Goods Orders, and Existing Home Sales data later during the early Norther American session. Apart from this, trade-related developments will influence the USD price dynamics, which, along with the broader risk sentiment, should provide short-term impetuses to the USD/CHF pair.
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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